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Employee Provident Fund, or EPF, is a government-backed voluntary retirement savings scheme available to all salaried employees in India. Under this scheme, an employee is required to contribute 12% of his basic salary every month towards their EPF account, and an equivalent amount has to be contributed by the employer.
Upon retirement, the employee is provided with a lump sum corpus, which includes the employee’s and the employer’s contributions and the interest earned by them to date.
One question that might come to your mind here is what will be the interest rate that you will be getting on your EPF contributions. Well, the EPF interest rate is decided by the Finance Ministry of India. It is reviewed every year after a discussion with the Employee Provident Fund Organization’s (EPFO) Central Board of Trustees.
The interest rate is decided based on prevailing market conditions and external and internal factors. The PF interest rate, once published, remains valid for the entire financial year. For example, the PF rate published in 2023 will remain valid for the financial year 2023-24, i.e., from 1 April 2023 to 31 March 2024.
Below are the PF interest rates for the last five years:
|
Year |
EPF Interest Rate |
|
2018-19 |
8.65% |
|
2019-20 |
8.65% |
|
2020-21 |
8.55% |
|
2021-22 |
8.55% |
|
2022-23 |
8.10% |
As per the Employees’ Provident Fund and Miscellaneous Provisions Act of 1952, an employer is required to contribute 12% of their basic salary plus Dearness Allowance (DA) towards their EPF account every month. For example, if the basic monthly salary plus dearness allowance of an employee is Rs 20,000, their monthly EPF contributions would be Rs (12% of 15,000), i.e., Rs 2,400.
Besides, the employer is also required to contribute 12% of the employee’s salary towards their EPF account every month. However, these contributions are made in two blocks – the first is 3.67% of the salary, and the second is 8.33% of the salary, subject to a maximum of Rs 1,250. So, in the above example, the employer’s monthly EPF contributions would be Rs (3.67% of Rs 20,000) + Rs 1,250, i.e., Rs 1,984.
The interest on the PF balance is calculated every month. However, it is credited to your account only on the last day of a financial year, i.e., on 31 March of every year. You can calculate the interest on your EPF by multiplying the monthly closing balance with the current PF interest rate and dividing it by 12. This method for interest calculation is known as the step method.
In the above example, the total EPF balance after the end of the first month would be Rs (2,400 + 1,984), i.e., Rs 4,384. The applicable PF interest rate for 2022-23 is 8.10%. So, the interest on the PF balance after the first month would be (8.10% of Rs 4,384) / 12, i.e., Rs 29.60.
Similarly, the interest for the next month would be 8.10% of (Rs 4,384 + Rs 4,384) / 12, i.e., Rs 59.20.
You can also use the formula method for calculating the interest on your monthly EPF balance. Here, you can put the applicable PF interest rate and the monthly closing balance in a formula (mentioned below) to evaluate the interest amount.
Interest = (R/12) * M, where “R” is the applicable PF interest rate and “M” is the monthly closing balance.
You can also use an online EPF interest calculator to calculate the interest on your EPF balance. You need to enter your basic monthly salary plus dearness allowance, your age, and the date on which you started your EPF contributions. The approximate interest and your EPF balance will be displayed in a few seconds.
Calculating the interest on your EPF balance is a fairly easy task with the availability of online EPF interest calculators. You can also calculate it manually by using your monthly EPF balance and the applicable PF interest rate. To know your EPF closing balance, visit the Member e-SEWA portal on the EPFO’s official website.
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