EPF Interest Rate

EPF Interest Rate

Under the Employees Provident Fund and Miscellaneous Provisions Act of the year 1952, a scheme benefitting the retirement was framed which is the Employee Provident Fund. For every employed person, the EPF interest rate scheme is available. According to the scheme, the employer cuts a certain pf interest rate from the total salary of the employee and deposits it in his/her EPF account. An employer also has some contribution in the EPF interest account of the employee. At the time of retirement, the employee gets the amount calculated by adding the interest levied over the years, the employee’s contribution, and the employer’s contribution. The government keeps on revising the EPF interest rate, for instance, the EPF percentage for the financial year 2020-2021 was 8.5%.

What is the employee and employer contribution to pf?

Some key points to remember about the EPF contribution rate

  • In the 12% of the employer’s contribution to the EPF, 8.33% is EPS, and 3.67 is EPF.
  • For organizations where there are 20 or fewer employees, the organization is regarded as sick by the Board for Industrial and Financial Reconstruction, organizations that have suffered a loss close to their net worth, have a 10% EPF rate applicable.
  • The contribution of the employee completely goes into the provident fun and not in the employee’s pension scheme.
  • Additionally, the employer has to contribute a small 0.5% to the EDLI.
  • Some administration costs with EPF and EDLI which are 0.01% and 1.1% respectively are also to be covered by the employer. Hence, it concludes that 13.61% of the employee’s salary is the EPF contribution rate of the employer.

The contribution of the employee towards EPF

Usually, a 12% contribution is fixed for the employee towards the total EPF percentage but in the organizations mentioned below, a 10% contribution stands valid.

  • Organizations with less than 20 members
  • BIFR declared sick organizations
  • Organizations under a loss close to their net worth
  • Brick, coir, guar gum, or jute organizations
  • Organizations with less than ₹6,500 as their operating wage.

The EPF employer contribution

For ₹15,000, a fixed 12% EPF employer contribution is set which is equal to ₹1,800 a month. This means that a sum of ₹1,800 is to be contributed by the employer and the employee every month towards the Employee Provident Fund scheme. Earlier, the contribution amount for both employer and employee was set to be ₹780 which was the 125 of ₹6,500. Both the parties contribute the share, and it is deposited in the Employee Provident Fund Organization. It is a form of long-term investment which aids people in living an independent life even after retirement.

How is EPF interest rate calculated?

It is the EPFO’s central board of trustees that sets the EPF rate every year, and the EPF interest rate is critically examined by the ministry of finance owing to the market conditions. For instance, the EPF rate for 2018 was 8.55%, for 2017 it was 8.65%, and for 2016 it was 8.8%.

If we take up the EPF interest rate to be 8.65%, and your salary including the dearness allowance to be ₹50,000, as an employee you will contribute ₹6,000 which is 12% of your salary. And, if your employer contributes 12% towards EPF excluding the 8.33% contributed towards EPS, it will amount to ₹4,750. Hence, the opening account balance for your account will be ₹10,750.

Step method to calculate the EPF interest 

If you take up the interest rate to be 8.65% yearly, the monthly interest will constitute to 8.65%/12 which will be equal to 0.72%.

Formula Method

You can also get your EPF interest calculated by using the formula- EPF interest%/12= Interest Amount. Also, the balance that goes to the consecutive year is inclusive of the balance at the end of 12 months and the interest gained over the year.

Basic Salary Per MonthYour AgeEPF Interest RateYour Contribution:Employer's Contribution:Total Interest:Maturity Amount:
10,000258.5%Rs. 475200Rs. 475200Rs. 3143041Rs. 4093441
15,000258.5%Rs. 712800Rs. 712800Rs. 4714555Rs. 6140167
20,000258.5%Rs. 950400Rs. 950400Rs. 6286082Rs. 8186882
25,000258.5%Rs. 1188000Rs. 1188000Rs. 7857596Rs. 10233608
30,000258.5%Rs. 1425600Rs. 1425600Rs. 9429123Rs. 12280323
35,000258.5%Rs. 1663200Rs. 1663200Rs. 11000637Rs. 14327049
40,000258.5%Rs. 1900800Rs. 1900800Rs. 12572164Rs. 16373764
45,000258.5%Rs. 2138400Rs. 2138400Rs. 14143678Rs. 18420490
50,000258.5%Rs. 2376000Rs. 2376000Rs. 15715205Rs. 20467205

The EPF interest rate history

It was on March 4th ‘2021 that the EPF rates were decided to be 8.50%, keeping it the same as that of 2019-2020. In the year 2019, the EPF rates marked a 7-year low by going down to 8.50% from 8.65%. These PF deduction rates are finalized by the central government after consulting the Central Board of Trustees. In recent years, the EPF rate has usually been between the range of 8-9.5%.

The reason behind EPF interest not credited or late credited?

15% of the total annual accruals of EPFO are invested in equities via EPFs and the rest 85% is invested in the debt market. As per the norms, the EPF interest rates are decided by the Central Board of Trustees and finalized by the Ministry of Finance. After the finalization, the EPF interest credits in the account of fund subscribers.

For FY 2020-2021

The current contribution rate 2020-21 notification said that it was decided to be 8.5% and the Central Board of Trustees for EPFO have announced the splitting of this EPF interest credit giving the reason for an economic slowdown as a result of covid-19.

For FY 2019-2020

For the year 2019-2020, the EPF interest rate was decided to be 8.5% by the Central Board of Trustees for EPFO.

For the years 2018-2019

The EPF interest rate for the year 2019-2018 was decided to be 8.55% but the EPF interest was credited late for the year. It was so because the finance minister approved the interest rate late which was on 26th April 2019.

Latest notification about the EPF interest rate

There is an annual revision of PF deduction rates. For the year 2021-2022, the current EPF interest rate was decided to be 8.5% and when it is finalized, the monthly interest is calculated for the monthly balance and then for the year closing balance. The vetted interest rate is applicable for the financial year starting from 1st April to the 31st of March of the next year. Here are some key points about the EPF interest rate 2021-2022.

  • The applicability of the 8.5% current EPF interest rate is only for the deposits made between April 2021 to March 2022.
  • Though the EPF interest is calculated monthly, it is only credited at the end of the financial year.
  • The total interest gained over the year is added to the balance of April and further, the interest is calculated on the new balance.
  • If there is no deposit in the EPF account for 36 months, the account becomes inoperative or dormant.
  • For retired employees, the interest is not given for a dormant account.
  • If you have an inoperative account, the interest gained on it is taxable.
  • The employee will not receive any interest for the contribution done by the employer towards the Employee Pension Scheme.

For all EPF accounts, Aadhar Seeding is mandatory- June 1st’ 21

On June 1st’ 21, the EPFO came with a new mandate of Aadhar seeding being compulsory for every EPF account. ECR can only be allowed for the employees that have their Aadhar card seeded with the EPF account. Hence, if your Aadhar is not linked with your EPF account, your contribution towards EPF will not be credited to the account.

EPF contributions which are above 2.5 lakhs are to be taxed according to Budget-2021

Finance Minister Nirmala Sitharaman proposed the Budget-2021 on 1st February 2021 in which she announced that any EPF contribution which is above 2.5 lakhs annually should be taxed. The announcement is effective from 1st April 2021 which is the mark of the new financial year.

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Frequently Asked Questions (FAQ's)

When is the EPF interest credited in the accounts of the subscribers?

The EPF interest is credited in the accounts of the subscribers by the end of July every year.

Can the EPF interest be taxed?

Any interest which is gained on the contribution of fewer than ₹2.5 lakhs, is not taxable. Above that, the interest is taxable.

Does the EPF interest compound monthly?

Yes, the interest is compounded monthly but is credited at the end of the financial year

What are the current PPF and current PF interest rate?

The current PPF rate is 8.7% and the EPF rate is 8.5%.

How can one close an EPF account?

One can close an EPF account like any other bank account but with the addition of UAN, the process has become a little more complicated.