PF Calculation Guide 2026: How to Calculate EPF on Salary

Employee Provident Fund (EPF) is one of the most important statutory deductions in Indian payroll. Understanding how PF is calculated helps employees plan their retirement savings and helps employers ensure compliance with EPFO regulations.

What is EPF (Employee Provident Fund)?

EPF is a retirement savings scheme managed by the Employees' Provident Fund Organisation (EPFO). Both employee and employer contribute a percentage of the employee's salary to build a retirement corpus that earns interest (currently 8.25% per annum for FY 2025-26).

PF Contribution Rates 2026

The current PF contribution rates are:

• Employee Contribution: 12% of Basic + DA (goes entirely to EPF account)
• Employer Contribution: 12% of Basic + DA, split as:
  • 3.67% to EPF account
  • 8.33% to EPS (Pension Scheme)

PF Calculation Example

Let's calculate PF for an employee with the following salary:

Understanding the ₹15,000 Wage Ceiling

The statutory wage ceiling of ₹15,000 has important implications:

• For EPS: Pension contribution (8.33%) is always calculated on a maximum of ₹15,000, even if Basic + DA is higher
• For EPF: If Basic + DA exceeds ₹15,000, the employer can choose to contribute on actual salary or limit to ₹15,000
• Most companies contribute on actual Basic + DA (not limited to ₹15,000) to provide better retirement benefits

When PF is Limited to ₹15,000

If employer limits PF to statutory minimum:

Components Included in PF Calculation

PF is calculated on Basic Salary + Dearness Allowance (DA). The following components are excluded:

• House Rent Allowance (HRA)
• Conveyance/Transport Allowance
• Special Allowance
• Medical Allowance
• Bonus and Incentives
• Overtime Pay

Voluntary Provident Fund (VPF)

Employees can contribute more than the mandatory 12% through VPF:

• VPF contributions can be up to 100% of Basic + DA
• Same interest rate as EPF (8.25%)
• Tax-free returns (up to ₹2.5 lakh combined EPF + VPF contribution)
• Locked until retirement (with exceptions for housing, medical, education)

PF for New Joiners and Resignations

Mid-Month Joining

When an employee joins mid-month, PF is calculated on actual working days:

Resignation and PF Withdrawal

After resignation, employees can:

• Transfer PF to new employer (recommended to maintain continuity)
• Withdraw PF after 2 months of unemployment (taxable if service < 5 years)
• Partial withdrawal for specific purposes (home purchase, medical, education)

Common PF Calculation Mistakes

1. Including HRA in PF base: HRA should never be included
2. Forgetting the EPS cap: EPS is always capped at ₹1,250/month
3. Wrong pro-rata calculation: Use calendar days, not 30 days
4. Missing DA: If company pays DA, it must be included in PF base
5. Late deposits: PF must be deposited by 15th of following month

Frequently Asked Questions

Is PF mandatory for all employees?

PF is mandatory for employees earning Basic + DA up to ₹15,000/month in establishments with 20+ employees. Higher-earning employees can opt out when joining (not later).

Can I reduce my PF contribution?

No, the 12% employee contribution is mandatory and cannot be reduced. However, you can increase it through VPF.

How is PF interest calculated?

Interest is calculated monthly but credited annually. The current rate is 8.25% p.a. Interest is calculated on the running balance, including employer contribution.

What happens to PF if I change jobs?

You can transfer your PF to the new employer's account using Form 13. This maintains service continuity and tax benefits. UAN (Universal Account Number) remains the same across employers.

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