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Employees’ Provident Fund – EPF Interest Rate and Passbook

Employee Provident Fund (EPF) is a retirement benefits scheme that works under the Employees Provident Fund & Miscellaneous Provisions Act of 1952. The scheme applies to people who are employed. According to the EPF scheme, the company deducts some amount from an employee’s salary and deposits it into their EPF account. A company also contributes to the employee’s EPF account.

On retirement, the employee receives a lump sum amount of EPF, including the employee’s contribution, the organization’s contribution, and the interest rate credited each year. The authorities review the interest rate on EPF debts regularly. For the FY 2022-23, the EPF interest rate is 8.15%. Keep reading this article to learn about employees’ provident fund, EPF Interest rate, contribution rate, etc.

What is EPF?

EPF, or Employee Provident Fund, is a contribution-based retirement scheme run by the Government of India. It allows the employees to build up their retirement during their working years. There are two types of contributions made to EPF; one is the employee contribution, and the other is the company contribution. On retirement, the employee receives a lump sum amount that includes the employee and the employer’s contribution with an interest rate.

Is EPF Mandatory for All Employees?

All companies with more than 20 employees are required to enroll in the EPF scheme. Certain agencies can be required to enroll in the scheme with positive relaxations even when the number of employees is less than 20. In the company, every employee whose salary is less than Rs 15000 is required to contribute to EPF.

Also Read:- Employees Provident Fund (EPF) – EPFO Benefits & Process | How to Login to EPFO Member Portal and How to Reset EPFO Login Password

EPF Interest Rate FY 2023-24

The interest rate on EPF is reviewed yearly. EPF interest rate for FY 2023-24 is 8.15%. Once EPFO evaluates the interest rate for the final year, the interest rate is calculated on the basis of the monthly balance and then calculated for the remaining year.

The year when the new interest rates are announced remains effective for the following financial year. For example, From the year starting on 1 April of 12 months to the year finishing on 31 March of the next year. Here are some important facts you should know about EPF Interest Rate

  • The interest rate i.e. 8.15% is legal and may be considered well on EPF deposits made between April 2023 to March 2024.
  • The interest, even though calculated on a monthly basis, is transferred to the Employees’ Provident Fund account only on an annual basis on 31 March of the economic year.
  • The earned interest is added for next month i.E. April’s balance and is then again used to calculate interest.
  • If the contribution is not made into an EPF account for 3 years constantly, the account is closed.
  • Interest is offered on debts of employees who’ve not attained retirement age.
  • Interest isn’t always given on the amount deposited in inoperative accounts of retired employees.
  • The interest earned on inoperative accounts is taxable as according to the member’s slab rate.
  •  For contributions made towards the Employees’ Pension Scheme by the company, the employees shall now not receive any interest. However, a pension is paid out of this amount after the age of 58.

Essential Details to Calculate EPF Interest Rate

The details required to calculate EPF interest are given below:

  • The current age of an employee.
  • Current EPF balance.
  • Monthly basic salary and dearness allowance are up to Rs 15,000.
  • Percentage of contribution to EPF.
  • Retirement age.

EPF contribution is added to the EPF account every month, and the interest rate is calculated accordingly. However, the interest for the year will be calculated at the end of the financial year. Interest for the FY 2022-23 is 8.15%. Hence, for every month’s interest calculation, the interest rate may be considered as 0.679%, i.e., 8.15%/12.

Methods for the calculation of interest rates

The EPFO comes to a decision on the interest rate for the EPF scheme on a yearly basis. The interest rate depends on the market situation and is set by the finance ministry. The interest rate may be calculated either by using an online technique or a formula. Here, we give you an example of the calculation of interest rate by using both methods with the interest rate of 8.25%

Assumptions

EPF Basic salary and dearness allowance: Rs.40,000

Rate of interest: 8.25%

Employee’s contribution to EPF (12% of Rs.40,000): Rs.4,800.

Employer’s contribution towards EPF (3.67% of Rs.40,000): Rs.1,468

Employer’s contribution towards EPS (8.33% of Rs.40,000): Rs.3,332

Employers’ contributions are closer to EPS under the Rs.15,000 salary scale (8.33% of Rs.15,000): Rs.1,249, which is around  Rs. 1,250.

The contribution made by the company towards EPS that is more than the salary scale (Rs.3,332-Rs.1,249): Rs.2,082

The extra contribution made by the company towards EPF contribution (Rs.2,082Rs.1,468): Rs. 3,550

Therefore, the total contribution made by the company and employees towards EPF (Rs.4,800+Rs.3,550) is Rs.8,350.

  • Formula method: Here, we tell you the formula that is used to calculate the interest by using the formulation method

(8.25%/12) x Rs.8,350= Rs.57.40, that is rounded off to Rs.57

  • Step approach: Mentioned below is the calculation of interest by using the step method

8.25%/12 = 0.6875% rounded to 0.69%

0.69% x Rs.8,350 = Rs.57.62, that’s rounded off to Rs.58

Therefore, the calculations for the interest rate are the same by using both methods. Interest can also be calculated with the PF interest calculator, which is available on an online website. 

Example of calculation of interest for an economic year

The table below is an example of the calculation of interest for a financial year

MonthsBasic salary plus dearness allowanceThe contribution made by the company (Rs.)Contribution made by employee (Rs.)The total balance is to be had at the end of the month (Rs.)Interest that is generated (Rs.)
140,0003,5504,8008,3500
240,0003,5504,80016,70057
340,0003,5504,80025,050113
440,0003,5504,80033,400170
540,0003,5504,80041,750227
640,0003,5504,80050,100284
740,0003,5504,80058,450340
840,0003,5504,80066,800397
940,0003,5504,80075,150454
1040,0003,5504,80083,500510
1140,0003,5504,80091,850567
1240,0003,5504,8001,00,200624

Calculation of the total EPF balance that will be given into account at the end of the year is the addition of the total balance that is present at the end of the month and the interest that has been generated. Therefore, the total balance available in the account is

Rs.1,00,200 + Rs.3,743 = Rs.1,03,943

Contributions made by employees and the company

Before knowing about the various strategies for calculating interest, employees must know their contribution to the program. Employee contributions would range between 8% (inside the case of ladies for the first three years of employment), 10%, and 12%. The organization’s contribution to the EPF plan is 10% or 12% of the employee’s salary. If the number of employees employed through the company is less than 20, the company’s contribution is 10%. The enterprise’s contribution, however, is split between the EPF, Employees’ Pension Scheme (EPS), and Employee Deposit Linked Insurance (EDLI). The breakdown of employee’s and organization’s contributions to the scheme is given below.

ContributionsEmployer’s ContributionEmployee’s Contribution
EPF3.67%12%
EPS8.33%Nil
EDLI0.5%Nil

Tax Benefits on EPF Contributions

An employee can get tax benefits for contributing to PF accounts under section 80C of the Indian Income Tax Act, 1961. This benefit can be availed by contributing up to Rs. 1 lakh to a PF account. If you contribute to an employee provident fund account for 5 years, you may break out tax deductions on the amount you have contributed. But, if the duration of your EPF contribution is much less than 5 years and also you withdraw your PF contribution before it completes five years, salary tax can be deducted at supply (TDS).

Conclusion: EPF Interest Rate

EPF or Employee Provident Fund is a contribution-based retirement scheme run by the Government of India. It permits employees to build up their retirement efficiently during the working years.

There are 2 portions to an EPF contribution; one is the employee contribution, and the other is the company contribution. On retirement, the employees receive a lump sum amount that includes the employee and the company’s contribution with interest.

FAQs

Is EPF interest credited monthly or yearly?

The EPF contribution is credited to the EPF account every month, and interest is calculated monthly. However, the total interest for the economic year may be credited at the end of the financial year.

Is the EPF interest rate fixed or variable?

The EPF interest rates are fixed by the government. The government revises the interest rate again and again. Currently, the government has a constant EPF interest rate for the economic year 2022-23 at 8.15%.

What is the method of crediting EPF interest rate to the subscribers?

The compound interest is credited monthly on the fees declared by the government for each year. For 2022-23, the interest rate declared is 8.15%.

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