The Employees’ Provident Fund (EPF) is a savings scheme for employees who are working for organisations that come under the Employees’ Provident Fund Organisation (EPFO).
- Employer and employee make contributions
- Interest rate is 8.5% p.a.
- Wage ceiling is Rs.15,000
- Mandatory for organisations with over 20 employees
For more information, Check out related articles UAN, UAN Activation, EPF Claim Status & EPF Passbook
Methods for the calculation of interest rates
The EPFO decides the rate of interest for the EPF scheme on a yearly basis. The rate of interest is dependent on the market conditions and is vetted by the finance ministry. The interest rate can be calculated either by using the step method or the formula method. The rate of interest for the FY 2019-2020 is 8.5%. Given below is an example of the calculation of interest using both methods:
Assumptions
EPF Basic salary and dearness allowance: Rs.40,000
Rate of interest: 8.5%
Employee’s contribution towards 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
Employer’s contribution towards EPS under the Rs.15,000 wage ceiling (8.33% of Rs.15,000): Rs.1,249.50
The contribution made by the employer towards EPS that is more than the wage ceiling (Rs.3,332-Rs.1,249.50): Rs.2,082.50
The excess contribution made by the employer is added to the EPF contribution (Rs.2,082.50+Rs.1,468): Rs. 3,550.50, which is rounded off to Rs.3,551
Therefore, the total contribution made by the employer and employee towards EPF (Rs.4,800+Rs.3,551) is Rs.8,351.
- Formula method: Given below is the method to calculate the interest using the formula method:
(8.65%/12) x Rs.8,351 = Rs.60.19, which is rounded off to Rs.60
- Step method: Mentioned below is the calculation of interest using the step method:
8.5%/12 = 0.70%
0.70% x Rs.8,351 = Rs.58.46, which is rounded off to Rs.58
Therefore, the calculations for the rate of interest are the same using both the methods. Interest can also be calculated with the help of the PF interest calculator that is offered by various third-party websites.
The balance that is available at the end of the year will be the opening balance that is present for the next year.
Example of calculation of interest for a financial year
The table below is an example of the calculation of interest for an entire financial year:
| Months | Basic salary plus dearness allowance | Contribution made by the employer (Rs.) | Contribution made by the employee (Rs.) | Total balance that is available at the end of the month (Rs.) | Interest that is generated (Rs.) |
|---|---|---|---|---|---|
| 1 | 40,000 | 3,551 | 4,800 | 8,351 | 0 |
| 2 | 40,000 | 3,551 | 4,800 | 16,702 | 60 |
| 3 | 40,000 | 3,551 | 4,800 | 25,053 | 120 |
| 4 | 40,000 | 3,551 | 4,800 | 33,404 | 181 |
| 5 | 40,000 | 3,551 | 4,800 | 41,755 | 241 |
| 6 | 40,000 | 3,551 | 4,800 | 50,106 | 301 |
| 7 | 40,000 | 3,551 | 4,800 | 58,457 | 361 |
| 8 | 40,000 | 3,551 | 4,800 | 66,808 | 421 |
| 9 | 40,000 | 3,551 | 4,800 | 75,159 | 482 |
| 10 | 40,000 | 3,551 | 4,800 | 83,510 | 542 |
| 11 | 40,000 | 3,551 | 4,800 | 91,861 | 602 |
| 12 | 40,000 | 3,551 | 4,800 | 1,00,212 | 662 |
Calculation of the total EPF balance that will be present in the account at the end of the year is the addition of the total balance that is present at the end of the last month and the total interest that has been generated. Therefore, the total balance available in the account is:
Rs.1,00,212 + Rs.3,973 = Rs.1,04,185
History of EPF interest rates
Given below is the table for the EPF interest rates from 2000 till date:
| Financial Year | Rate of interest per annum p.a. |
|---|---|
| 2019-2020 | 8.5% |
| 2018-2019 | 8.65% |
| 2017-2018 | 8.55% |
| 2016-2017 | 8.65% |
| 2015-2016 | 8.80% |
| 2013-2015 | 8.75% |
| 2012-2013 | 8.50% |
| 2011-2012 | 8.25% |
| 2010-2011 | 9.50% |
| 2005-2010 | 8.50% |
| 2004-2005 | 9.50% (inclusive of Golden Jubilee Bonus of 0.50%) |
| 2001-2004 | 9.50% |
| 2000-2001 | 12.00% April to June 2001 11.00% from July 2001 |
Contributions made by employee and employer
It is vital that employees understand the contribution made towards the scheme before finding out the various methods for the calculation of interest. The employees’ contribution can be 8% (in the case of women for the initial three years of employment), 10%, and 12%. The employer’s contribution to the EPF scheme is 10% or 12%. The contribution made by the employer is 10% in case the number of employees working for the organisation is less than 20. However, the employer’s contribution is split among EPF, Employees’ Pension Scheme (EPS), and Employee Deposit Linked Insurance (EDLI).
The break-up of the employee’s and employer’s contribution to the scheme is mentioned below:
| Contributions | Employer’s contribution | Employee’s contribution |
|---|---|---|
| EPF | 3.67% | 12% |
| EPS | 8.33% | Nil |
| EDLI | 0.5% | Nil |
Salary more than the wage ceiling
In case the salary of the employee is more than Rs.15,000, one of the below-mentioned methods can be opted by employers:
- The employer may allow the employee to pay 12% of his/her basic salary and dearness allowance and restrict their contribution to the Rs.15,000 wage ceiling.
- The employer may match the employee’s contribution even if the salary is above Rs.15,000.
- The employer can restrict both the contributions to the Rs.15,000 wage ceiling.
Information required to use a PF Interest Calculator
An employee should enter the following information in a PF interest calculator to know his/her PF interest:
- Current age of an employee
- Current EPF balance
- Age of retirement
- Monthly basic pay
- Monthly dearness allowance
- Monthly EPF contribution in percentage.
- Expected salary hike
Once you enter the above-mentioned information in the PF calculator, it will reveal the total interest you would receive at the time of retirement. EPF calculation is, therefore, made easier by EPF calculator.
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 for contributing up to Rs. 1 lakh to a PF account. If you contribute for an employee provident fund account for 5 years, you will escape tax deduction on the amount you have contributed. But, if the duration of your EPF contribution is less than 5 years and you withdraw your PF contribution before it completes 5 years, income tax will be deducted at source (TDS).
