According to the Employee Provident Fund Scheme, the employer and the employee of a company contribute about 12% of the employee’s dearness allowance amount, and basic salary amount to the employee’s Employees Provident Fund account every month of the year. By law, for any business/brand/company that >= 20 employees, it’s mandatory to enrol under the Employees Provident Fund scheme’s blanket. Also, there can be only 1 EPF account for each employee of the company.
Key Takeaways
- What is the interest rate for EPS, EPF, and EDLI?
- What are tax benefits enjoyed by EPF account holders?
- All you need to know about the EPF salary updates for the year 2022
EPF interest credit and how it works
The intent of the EPF scheme is to provide financial aid and support to employees; EPFO gives all employees the option to withdraw a dedicated part of their EPF after a year of working in a company in case of any emergencies. Furthermore, the funds that are accumulated in the employee’s EPF account are collected with an interest rate of 8.5%.
The EPFO does a thorough review of the EPF interest credit offered on the amount accumulated in the employees’ EPF accounts every year. The interest rate is then discussed and decided between the Central Board of Trustees of the EPFO and the Ministry of Finance, India – at the end of every financial yr (latest news on interest credit).
EPF interest credit Rates and How is Interest on EPF calculated?
On the basis of a month, the employer and the employee both contribute to the employee’s EPF account in the following process:
The employee contributes about 12% of their dearness allowance & basic salary amount to their Employee Provident Fund (EPF) account book. Though, if the employee’s company has <= 20 employees or is part of industries like jute, beedi, coir, brick and/or guar gum factory, at that moment, the employee will be contributing about 10% to the EPF account.
Another form of contribution is made through the employer. The employer contributes about 12% of the employee’s dearness allowance amount and basic salary amount to the process-
8.33% interest rate towards Employees’ Pension Scheme (EPS)
3.67% interest rate towards Employees’ Provident Fund (EPF)
0.50% interest rate towards Employees’ Deposit Linked Insurance (EDLI)
Did You Know?
On top of this, the employer has to pay an additional 0.50% for administrative account charges from 1 June 2018.
If the employer does not contribute for any specific month, they will have to pay a fine of Rs. 75 for that particular month; though, the minimum administrative charge amount is Rs. 500. EPF interest credit is calculated on the basis of months though it gets deposited to the employee’s EPF account on an annual basis.
Example of How interest is calculated on EPF amount
Let’s check out how interest is calculated on EPF amount with the aid of a hypothetical example:
Suppose that an employee, Mr A has a monthly salary of Rs. 15,000 (Basic salary + Dearness allowance)
Now, after this employee’s contribution to their EPF account, will be Rs. 1800 (12% of 15,000)
Employer’s contribution to their EPS would be Rs. 1250 (8.33% of 15,000)
Employer’s contribution to their EPF would be Rs. 550 *3.67% of 15,000)
Monthly contribution total to his/her EPF = Rs. 2,350 (Rs. 1800 + Rs. 550)
Considering the current interest rate on EPF amount to be about 8.5%, the monthly interest on EPF amount is equal to 8.5% of 2,350 (8.5% of monthly EPF contribution) = 0.7083%
Now, after this, assuming that the employee joined the company on 1 April 2019, his contributions to his EPF account book would be calculated from the financial year 2021 to 2022.
Total EPF contribution amount in April – Rs. 2,350
Interest on EPF for April – NIL (since no interest is offered on the 1st month to EPF)
EPF account balance amount at the end of April – Rs. 2,350
Total EPF contribution amount for May (next month) – Rs. 4700 (2350 + 2350)
Interest on the EPF amount for May – Rs. 33.39 (0.7083% of 4700)
It must be taken into account in this case that while the interest on EPF will be calculated on a monthly basis, it will only be deposited at the end of the financial year.
EPF Salary Update 2022
Employers might choose from these options if their income is higher than Rs.15,000 per month. The employer may agree for the employee to contribute 12 per cent of their basic salary amount & dearness allowance amount, with the contribution money limited to Rs.15,000 in terms of the wage gap.
By chance, if the employee’s income is more than Rs.15,000, the organization may match the employee’s contribution. The employer has a choice of capping both contributions at Rs.15,000 per month of salary.
EPF Tax Benefits
Employees who make contributions to their PF accounts are eligible for great tax benefits under the section 80C of the Income Tax Act of India, 1961.
This benefit is viable for contributions to a PF account to a maximum of 1 lakh rupees.
If an employee makes contributions to an employee provident fund account for five years, they will not be eligible and able to claim a tax deduction amount for what they have put in.
Also, if the employee withdraws their PF contribution before five years have passed and their EPF account contribution was less than five years in length, income tax will be deducted at the point of withdrawal.
EPF Interest Rates 2022-2023
Category | Percentage of Contribution (%) |
Employees Provident Fund | 3.67 |
Employees Pension Scheme (EPS) | 8.33 |
Employees Deposit Link Insurance Scheme (EDLIS) | 0.50 |
EPF Admin Charges | 1.10 |
EDLIS Admin Charges | 0.01 |
How to regulate delay in EPF Interest Rate Crediting to account and make the journey friction-free and smooth?
One of the biggest EPFO news on interest credit every year is in March, the central board of trustees meets to declare the financial year’s interest rate, which is then forwarded to the finance minister for approval.
EPFO’s (Employees’ Provident Fund Organisation) Diwali present to its members — India’s approximately 60 million employees are now available.
Did You Know?
The finance ministry has approved the 8.5 per cent interest rate set by EPFO’s governing board of trustees in March for the fiscal year 2020-21.
Despite the fact that the announcement from the finance ministry was made before Diwali, it may take a while for the interest to be deposited to your EPF account, it can be about two weeks, according to reports. A Diwali gift should make people joyful, but the fact is that the delay causes employees heartburn year after year.
Why does EPF interest take longer to credit or does not credited sometimes?
If anytime EPF interest not credited, it is due to inter-ministerial coordination, and administrative process.
India now has access to interest-free credit. Posting minor savings accounts, such as savings, senior citizens’ savings programs, Sukanya Samriddhi accounts, and public provident funds is not a difficult task. Every year, the finance ministry determines interest rates for each quarter, which are immediately credited to accounts. However, in the case of EPF interest credit, the wait is a common occurrence. On the cause for the delay, there isn’t much information available.
According to Preeti Chandrashekhar, Business Leader, Retirement, Health and Benefits, Mercer India, one likely explanation is the due diligence that the Indian Finance Ministry may seek from the labour ministry given that the provident fund rate is substantially greater than other savings schemes’ rates. Many employees have expressed their dissatisfaction with the new policy.
Employees can benefit from transparency and auto-transfers. A standard epf interest credit should be declared at the start of the fiscal year. At the end of each quarter, interest should be credited to individual EPFO accounts. There is also a need for increased openness by digitising interest computation and auto-crediting interest to members’ accounts. With Aadhaar seeding and PAN connection, a critical leg of digitisation has been completed and it is now time to proceed to auto-credit of interest, as is done with bank accounts.
Every financial year, the job of EPFO and the Ministry of Finance is to determine the EPF interest rate and the pf interest credit date. It should be always noted that, while EPF interest amount is calculated monthly, the entire interest amount is deposited to the employee’s EPF account at the conclusion of each fiscal year. According to the EPF interest credit news, the monthly interest rate would be estimated as 0.708 per cent if the interest rate for the financial year 2019-2020 is 8.5 per cent.
FAQs
The interest earned on the Employee Provident Fund account is credited to the member’s account on March 31st, which is the very last day of the fiscal year.
Employee Provident Fund interest is tax-free until the date of retirement (i.e., 60 years). However, any interest credited to the Employee Provident Fund account after retirement is taxable as ‘Income from Other Sources.
Read more about EPF form 19.