Employees’ Provident Fund (EPF) is a retirement scheme for employees in which both the employer and the employee contribute an equal amount of money, which is 12% of the salary. This amount gets accumulated in the employee’s PF (Provident Fund) account and gets an interest rate on the gathered amount.
During retirement, the salaried class person gets a lump sum amount. The principal amount and the interest earned are not taxable by the income tax. Due to the covid-19 pandemic, the government reduced the contribution to 10% to accommodate businesses that suffered a slowdown.
EPFO (Employees Provident Fund Organization) consults the Finance Ministry regarding the EPF interest rate, and accordingly, the interest rate is fixed for every financial year. The interest is calculated every month according to the funds deposited in the employee’s EPF account, and it is credited to the EPF account at the end of the fiscal year.
Learn the Basics
The EPF interest rate credited in FY 2019-2020 was 8.5%. It was credited to the account holders in two instalments–8.15% and 0.35%. The decision making body of EPFO, led by the Labor Minister–The Central Board of Trustees (CBT)–approved this rate.
In FY 2020-2021, EPFO (Employees’ Provident Fund Organization) credited an 8.5% interest rate to 23.34 crore PF account holders. This interest rate for the financial year (FY) 2022-23 has dropped to 8.1% per annum. EPFO stated that in February 2022, the number of net members added was 14.12 lakh.
Key Takeaways
- The EPF interest rate for FY 2022-23 (current financial year) is 8.1% per annum.
- The EPF interest credit happens to the EPF account at the end of the fiscal (financial) year.
- The EPFO and Finance Ministry decide on an interest rate for the EPF every year.
Current And Historical EPF Interest Rate EPF
The Central Board of Trustees of EPFO, in consultation with the Finance Ministry, decides the interest rate of the EPF every year. The PF interest rates for the last few years are as follows:
FINANCIAL YEAR | RATE OF INTEREST PER ANNUM |
2022-2023 | 8.10% |
2021-2022 | 8.50% |
2020-2021 | 8.50% |
2019-2020 | 8.50% |
2018-2019 | 8.65% |
2017-2018 | 8.55% |
2016-2017 | 8.65% |
2015-2016 | 8.80% |
2013-2015 | 8.75% |
2012-2013 | 8.50% |
2011-2012 | 8.25% |
2010-2011 | 9.50% |
2005-2006 to 2009-2010 | 8.50% |
Did You Know?
Salary for EPF computations means basic salary plus dearness allowance.
Details Required For The Calculation of EPF Interest Rate
- The employee’s current age.
- Monthly and basic dearness allowance (maximum of Rs. 15.000).
- The total amount of money in the EPF account.
- The amount and the percentage contributed to EPF.
- Age of retirement of the account holder.
- Expected salary hike.
Know More About The EPF Interest Rates For FY 2022-2023
EPFO has reduced the interest rate from 8.55 to 8.1% for FY 2022-2023. The interest rate is calculated monthly on the closing balance of that month. It is cumulatively deposited in the PF account at the end of the fiscal year, i.e. from 1st April to next year’s 31st March. Some things to remember about EPF interest rate:
- All deposits made between April 2022 and March 2023 will fetch an interest rate of 8.1%.
- The interest is calculated every month and will be deposited next year on 31st March.
- If no deposits are made continuously for 3 years, the account will automatically be dormant or inactive.
- The interest collected in such an account (dormant) is taxable, depending upon the member’s slab rate.
- If a retired employee’s account is inactive, no interest is paid on the funds present in that account.
How Is The Interest Rate On EPF Calculated?
There are two ways of calculating the EPF rate of interest – the step method and the formula method. Interest earned can also be calculated using an EPF Calculator, available online.
A detailed example of EPF interest rate calculation using the step and formula methods is here. For FY 2022-23, the rate of interest is 8.1%.
Let’s assume that an employee’s salary, including dearness allowance, is Rs. 45,000.
The employee contribution for EPF will be 12% of Rs. 45,000 = Rs 5,400.
Employer contribution for EPF will be 3.67% of Rs 45,000 = Rs1,651.50, which round to Rs 1,652.
Employer contribution for EPS (Employee Pension Scheme) will be 8.33% of Rs. 45,000 = Rs. 3,748.50, which will round to Rs 3,749.
Employer contribution for EPS (on threshold income of Rs. 15,000) will be 8.33% of Rs 15,000 = Rs. 1,249.50.
This Rs 1,249.50 will be rounded to Rs1250 using the formula method.
In this case, we notice that the contribution made by the employer towards EPS is more than the threshold. The excess contribution made by the employer towards EPS (that is Rs. 3,749 – Rs. 1,250 = Rs. 2,499) will be added to the EPF balance. Now, the final contribution made by the employer towards EPF will be Rs 2,499 + Rs 1,652 = Rs 4,151.
The total contribution made by the employer and the employee towards EPF will be Rs 4,151+ Rs 5,400 = Rs 9,551. Thus, the total contribution every month or the EPF wages is Rs 9,551.
Formula method – 8.1%/12 x Rs. 9,551 = Rs 64.46, which will be rounded off to Rs 64.
Step method – the EPF interest is compounded monthly, so the monthly interest would be 8.1%/12 = 0.00675, which would be 0.67% when rounded off.
0.67% x Rs 9,551 =Rs 63.99 which is rounded off to Rs 64.
Did You Know?
If an establishment has less than 20 employees, it must contribute 10% of the employee’s salary towards EPF.
EPF interest calculation for the FY 2022-23 with an interest rate of 8.1%
Months | Basic salary (including dearness allowance) | Employers contribution | Employees contribution | Total balance available at the end of the month | EPF interest |
1 | 45,000 | 4,151 | 5,400 | 9,551 | 0 |
2 | 45,000 | 4,151 | 5,400 | 19,102 | 64 |
3 | 45,000 | 4,151 | 5,400 | 28,653 | 128 |
4 | 45,000 | 4,151 | 5,400 | 38,204 | 192 |
5 | 45,000 | 4,151 | 5,400 | 47,755 | 256 |
6 | 45,000 | 4,151 | 5,400 | 57,306 | 320 |
7 | 45,000 | 4,151 | 5,400 | 66,857 | 384 |
8 | 45,000 | 4,151 | 5,400 | 76,408 | 448 |
9 | 45,000 | 4,151 | 5,400 | 85,959 | 512 |
10 | 45,000 | 4,151 | 5,400 | 95,510 | 576 |
11 | 45,000 | 4,151 | 5,400 | 1,05,061 | 640 |
12 | 45,000 | 4,151 | 5,400 | 1,14,612 | 704 |
TOTAL | 4,224 |
So, the total EPF balance will be the total amount and the interest credited by the end of the Financial Year.
In the above example, it will be Rs. 1.14.612 + 4.224 = Rs 118,836.
Word to Remember
The fiscal year, also referred to as the financial year, is typically from April 01 to March 31. These dates are followed for all finance-related computations, from tax to books of accounts. The financial year may vary in different countries, but it is considered from April to March of the following year in India. Therefore, ‘FY 22-23’ means from April 01, 2022, to March 31, 2023.
Conclusion
Contributions to the EPF accumulate over the years to provide enough financial security to the employee during retirement. This security is particularly handy when the employee does not have any stable source of income post-retirement. Earning interest in EPF contributions is integral to ensuring your wealth meets the inflation rates and is enough to sustain after many years. You can ensure that your EPF account is earning interest properly and plan your finances accordingly through these simple calculation methods.
Did You Know?
- Anyone above the age of 54 can withdraw 90% of the accumulated balance in the EPF account.
- The wage ceiling for employer contribution towards Employee Pension Scheme is Rs. 15,000. They can add any excess amount to the EPF contribution.
FAQs
No, it is available online and is free of cost.
Though members cannot withdraw the EPF funds entirely, partial withdrawal is possible for the following reasons:
On the occasion of marriage or for funding higher education of the member themselves, their children or siblings.
Medical treatment for family members.
Repayment of home loan.
Repairing of own house.
Construction or purchase of a house or plot.
Yes, it is necessary. Only after linking the PAN will you be able to access the EPF portal for online services.
The EPF interest rate for FY 2022-23 IS 8.1.%
Yes, the EPFO (Employees Provident Fund Organisation) has to approve all entries reflected in the EPF passbook. The validation happens in the field offices of the EPFO (Employees Provident Fund Organisation) and is then updated on the EPF passbook.