InvestorQ : What is the method of calculating Provident funds?
Aashna Tripathi made post

What is the method of calculating Provident funds?

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Tisha Malhotra answered.
6 months ago
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A provident fund is like a pension fund that is accumulated throughout the service of an employee and is given to him as a lump sum amount at the time of his exit. However, this does not pay monthly payments like pension funds.
There is a statutory requirement on organizations falling under the scope of the Act to contribute to PF for their employees and shall include the share of employer and employee. It applies to:

Every establishment in which 20 or more persons are employed and is a factory engaged in industry specified under Schedule I.

Every other establishment or class of establishment, as notified by Central Government or establishment in which more than 20 persons are employed.

Per the rules specified under the Act, every employer shall contribute to the PF an amount equal to the 12% of Basic Wages + Dearness Allowance, including the cash value of food provided at the concession and any presents made by the employer to employee, per month. At the time of retirement, all the amount accumulated (employer + employee contribution) along with interest compounded thereon become payable to the employee.
The meaning of basic wages has been defined under the Provident Fund Act and shall be construed to the meaning attached to it.
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