EPF Interest Rate

Under the Employees Provident Fund and Miscellaneous Provisions Act of the year 1952, a scheme benefitting 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 to 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.

Recent Update on EPF: According to an official order issued on July 24, 2023, the EPFO has declared the interest rate as 8.15% for Employees’ Provident Fund (EPF) accounts for the financial year 2022-23. Notably, the upsurge has been made from a 4-decade low of 8.10% for FY 2021-22.

What is the Employee and Employer Contribution to PF?

Here are some key points to remember about the EPF Contribution Rate:

• Of the 12% of the employer’s contribution to the EPF, 8.33% is EPS, and 3.67 is EPF.
• For organisations where there are 20 or fewer employees, the organisation is regarded as sick by the Board for Industrial and Financial Reconstruction, and organisations 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 fund and not into 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 organisations mentioned below, a 10% contribution stands valid.

• Organisations with less than 20 members
• BIFR declared sick organisations
• Organisations under a loss close to their net worth
• Brick, coir, guar gum, or jute organisations
• Organisations 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 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 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.

The EPF Interest Rate History

It was on July 24, 2023, that the EPF rates were decided to be 8.15%, an upsurge from 8.10% in the year 2021-22. This is the lowest rate in four decades, as compared to 8.50% in 2020-21, 8.50% in 2019-20, 8.65% in 2018-19, and 8.55% in 2017-18. The highest interest rate was 12.00%, which was maintained from the year 1989-90. These PF deduction rates are finalised 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 finalised by the Ministry of Finance. After the finalisation, the EPF interest credits are in the account of fund subscribers.

For FY 2022-2023

The current contribution rate for the 2022-23 notification said that it was decided to be 8.15% by the Central Board of Trustees for EPFO. The hike has been made from a 4-decade low of 8.10% for FY 2021-22.

For FY 2021-2022

For the year 2021-2022, the EPF interest rate was decided to be 8.10% by the Central Board of Trustees for EPFO.

For FY 2020-2021

For the year 2020-2021, the EPF interest rate was decided to be 8.50% by the Central Board of Trustees for EPFO.

For FY 2019-2020

For the year 2019-2020, the EPF interest rate was decided to be 8.50% 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 8.65%, 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 2022-2023, the current EPF interest rate was decided to be 8.15%, and when it is finalised, 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 for 2022-2023

• The applicability of the 8.15% current EPF interest rate is only for the deposits made between April 2022 to March 2023.
• 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, 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.

EPF Contributions Which are Above 2.5 Lakhs are to be Taxed According to Budget-2022

Finance Minister Nirmala Sitharaman proposed the Budget-2022 in which she announced that any EPF contribution which is above 2.5 lakhs annually should be taxed. The new rules came into effect on April 1, 2022, and are applicable for FY 2021-22 and FY 2022-23.

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