EPF: Starting with basic salary of Rs 30,000 pm, how you can build retirement corpus of over Rs 3.50 crore

EPF: Employees' Provident Fund (EPF) is a time-tested retirement scheme where crores of Indians make monthly contributions for their respective retirement fund. Employees' Provident Fund Organisation (EPFO), the organisation that runs EPF accounts, has mandated that an employer will make the same percentage of monthly contribution to their employees as the employees themselves. 

The minimum monthly contribution in an EPF account is Rs 1,800, while the maximum is 12 per cent of the employer's basic salary. 

While the entire 12 per cent contributed by the employee goes into their account, the employer's 3.67 per cent contribution goes into the employee's EPF account, while the rest 8.33 per cent into the Employee Pension Fund (EPF), which provides a monthly salary after retirement. 

The EPF contribution is unique since it provides tax-free income. 

As part of the exempt-exempt-exempt category, while deposits up to Rs 1.50 lakh in EPF provide tax exemption under Section 80C of the Income Tax Act, the interest earned on these deposits and the maturity amount are also tax-free. 

Since it provides a fixed compound interest rate of 8.25 per cent, a lot of financial experts suggest that EPF account holders should make the most of the EPF facility by utilising the maximum deposit limit. 

One can also contribute more than 12 per cent of their basic salary to their EPF account. 

However, in such a situation, any income they earn of over 12 per cent contributions will come under the tax ambit.

In this write-up, through expert calculations, you will learn how you can get a retirement corpus of over Rs 3.50 crore by starting with a basic salary of Rs 30,000 a month at 25 years of age and increasing your monthly contribution by five per cent every year.    

How to get over Rs 3.50 cr retirement corpus 

Basic Salary: 3,60,000 a year
Initial Investment: Rs 30,000 per year (12% of your basic salary)
Annual Contribution Increase: 5%

Key takeaways

Based on the table and assuming an 8.25 per cent interest rate, you can accumulate a significant sum of Rs 3,40,61,077 in your EPF by retirement at the age of 60. 

Here's a breakdown of the key takeaways

Total contribution: You would contribute a total of Rs 41,40,129 throughout your service years.

Employer contribution: It's important to note that this amount only reflects your employee contribution. Your employer would also contribute an equal amount, significantly boosting the final corpus. Which can be additional from your EPF contribution.

Chart Courtesy: Finnovate