EPF interest calculation: Under the Employee's Provident Fund (EPF) scheme, the employee contributes 12% of his/her Basic salary and Dearness Allowance (DA) every month. The employer contributes 8.33% towards EPS and 3.67 towards EPF in the employee's account. The employee is allowed to withdraw after retirement or also during employment for specific purposes. The interest rate on EPF is calculated on a monthly basis but deposited in the account of the subscriber at the end of the financial year. The interest rate currently offered on EPF is 8.65%. In February, EPFO, which is the government's official retirement fund manager under the Union Ministry of Labour, had raised the EPF rate by 10 basis point to 8.65 for FY 2018-19. For FY 2017-18, the EPF interest rate was 8.55%. 

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One basis point equals to one-hundredth of a percentage point. There are around six crore EPFO subscribers in the country. 

 

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What rules say

EPF Scheme 1952 says, "The Commissioner shall credit to the account of each member interest at such rate as may be determined by the Central Government in consultation with the Central Board." The interest "shall be credited to the member's account on monthly running balances basis with effect from the last day in each year in the following manner:

a. "On the amount at the credit of a member on the last day of the preceding year, less any sums withdrawn during the current year— interest for twelve months.
b. "On sums withdrawn during the current year — interest from the beginning of the current year up to the last day of the month preceding the month of withdrawal.
c. "On all the sums credited to the member's account after the last day of the preceding year—interest from the 1st day of the month succeeding the month of credit to the end of the current year.
d. "The total amount of interest shall be rounded to the nearest whole rupee (fifty paise counting as the next higher rupee)."

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EPF Interest rate calculation

The following calculation will help you understand further:

Suppose your Basic + DA is Rs 20,000 and the interest rate = 8.65%. The monthly applicable interest here will 8.65/12 = 0.721%

Employee contribution to EPF will be equal to 12% of Rs 20,000 = Rs 2400

Employer contribution will be = 3.67% of Rs 20,000 = Rs 734.

Hence, the total monthly contribution in your EPF account will be Rs 2400+Rs734 = Rs 3134

If you joined your job on April 1, 2019, your contribution for FY 2019-2020 will start from this month itself. Here's how your interest will be calculated for FY 2019-20:

April

PF Deposit in April = Rs Rs 3134. The interest earned will be 0 (no interest in the first month). 
PF Balance at the end of April) = Rs 3134.

May

PF Deposit in May = Total deposit of April + May = Rs 3134 + Rs 3134 = Rs 6268
Interest earned in May = 0.721% of Rs 6268 = Rs 45.1. 

June

PF deposit in June = Balance from previous month + contribution of June = Rs 6268 + Rs 45.1+Rs 3134 = Rs 9447.1
Interest earned in June = 0.721% of Rs 9447.1 = Rs 68.11

Total balance at the end of June = Rs 68.11 + Rs 9447.1 = Rs 9515.2

For the rest of the months of the financial year, the interest will be calculated similarly. However, it will be deposited in your account at the end of the financial year in March 2020.