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Employees Provident Fund or EPF is a mandatory scheme in which employees of any organization government or private are required to participate with equal contribution from their organizations. EPF scheme as aimed as a social security measure by the government to enable a substantial number of citizens to save for their retirement phase.
Interest Rate Calculation for EPF
At present, 8.65% is the rate of interest applicable on EPF contributions made by the employer and the employee. The calculation of the actual interest received depends upon the salary of employee and also on the breakup of employer’s PF contribution. In order to calculate the rate of interest on EPF, let us first look into the EPF contribution structure for better understanding of EPF.
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Division of EPF Contribution
EPF contribution is divided into the following two distinct parts –
 Contribution made by employee
Contribution towards EPF is deducted from employee’s salary. This is 12% of the basic salary of the employee.
 Contribution made by employer
Contribution made by the employer also is 12% of the basic salary of the employee. However, this 12% is further subdivided into the following four components –
 Employee’s Provident Fund (EPF) – 3.67%

Employee’s Pension Scheme (EPS ) – 8.33%

Employee’s Deposit Link Insurance Scheme (EDLIS) – 0.50%

EPF Admin Charges – 1.10%

EDLIS Admin Charges – 0.01%
NOTE: This equal contribution from employee and employer is applicable only to salaries where Basic Salary plus Dearness Allowance is less than or equal to Rs.15,000. For cases where basic salary plus dearness allowance is greater than this amount it is purely an employer’s choice to decide the amount of PF contribution. However, the EPS contribution made by the employer remains fixed at 8.33%.
In case the basic salary of employee plus the dearness allowance is more than Rs.15,000 then employer’s contribution towards employee’s EPF can have three options to choose from. These alternatives are listed below.

Employer may restrict your contribution as well as the company’s to Rs.15,000 per annum

Employer may contribute towards EPF an amount equal to employee’s own contribution

Employer may restrict your share in EPF as 12% of the salary while its own share to Rs.15,000.
Example of EPF Calculation for an Employee
Let us take an example of Amit who has just joined a new organization in the month of June, at a monthly salary of Rs.10,000 (Basic + DA). Let us depict with the help of a table, his monthly deductions and the applicable rate of interest.
Month 
Employee Contribution (12%) 
Employer Contribution (3.67%) 
Monthly balance at the end of month 
Interest applicable 

June 
1200 
367 
1567 
Nil. Just Joined. 
July 
1200 
367 
1567+1567 = 3134 
1567*8.75%/12 = Rs.11 
August 
1200 
367 
3134+1567 = 4701 
3134*8.75%/12 = Rs.22 
September 
1200 
367 
4701+1567 = 6268 
4701*8.75%/12 = Rs.34.27 
October 
1200 
367 
6268+1567 = 7835 
6268*8.75%/12 = Rs.45.70 
November 
1200 
367 
7835+1567 = 9402 
7835*8.75%/12 = Rs.57.13 
December 
1200 
367 
9402+1567 = 10969 
9402*8.75%/12 = Rs.68.55 
January 
1200 
367 
10969+1567 = 12536 
10969*8.75%/12 = Rs.79.98 
February 
1200 
367 
12536+1567 = 14103 
12536*8.75%/12 = Rs.91.40 
Total EPF Balance at the end of the year 
10,800 
3303 
14103+1567 = 15670 
410.03 
So, in the example illustrated above, the total interest that Amit received for his EPF contributions from June to February comes out to be Rs.410.03.
Important Points to Be Considered When Calculating EPF Interest
There are a few points that need to be taken into account while calculating the rate of interest on EPF contribution. These are listed below.
 EPF contributions are shown by the employer with respect to the salary due. For example, salary for the month of August will be paid in September and the EPF contribution for August will be shown in September and not in August.
 The interest amount received on EPF is rounded off to the nearest decimal before being credited into your EPF account.
 In the unfortunate event of death of employee, the interest is payable till the month preceding the month in which death occurred.
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Recent changes with respect to EPF contributions
For the year 20142015, the government changed a few EPF rules and guidelines. Here is a brief introduction of all the changes that have been made.
 All employees earning salary less than Rs.15,000 are supposed to be provided mandatory EPF coverage by employers. Earlier, the limit for this was Rs.6,500. However, considering the current inflation trends and the soaring cost of living, government decided to raise this limit to include a higher percentage of population under the EPF coverage.
 Minimum pension per month for retired employees now stands at Rs.1000. This amount is applicable to widow pension. Children pension is fixed at Rs.250 minimum and that of orphans is Rs.750 per month. In addition to this, to arrive at the pension amount, now an average of 60 months’ salary will be taken into account as against the previous average of 12 months.
 Insurance coverage and as a result the contribution by employers has been raised by the government. EPS contribution now stands at Rs.1250 as against the existing Rs.541 which the employers were mandated to pay earlier. The insurance coverage has been increased to Rs.3 lacs from a previous value of Rs1.56 lacs per employee.
The overall effect of the above mentioned points, for employees in general would be that since the individual contributions towards EPS and EPF have increased, the take home salary for employees will be affected negatively. However, the good news is, since interest is being earned and these contributions contribute towards insurance and pension plans, employees can look at this as a good investment strategy.
Considering the overall positive effect EPF contributions have, employees can choose to invest more in the EPF scheme by opting for VPF which is short form for Voluntary Provident Fund Scheme. Any employee can contribute a flexible amount of money towards VPF contribution. This amount, should however, in no way exceed the monthly EPF amount for an employee.
EPF Interest Rate Trends in India
What are the New Amendments Made to EPF & EPS Schemes?
 An account holder of the EPF can nominate a family member as a beneficiary/nominee. In the event of unfortunate death of the member, the beneficiary/nominee will receive Rs.3 lakh as insurance coverage. Previously, this value was only Rs.1.56 lakh. The beneficiary/nominee should always be aware of this facility.
 Previously, the minimum contribution was 12% of Rs.6,500, but now it has been revised to 12% of Rs.15,000 per month. Effectively, an employee will now be depositing Rs.1,800 towards the EPF. On the other hand, the employer will now be contributing Rs.550 per month and Rs.1,250 per month towards EPF and EPS, respectively.
The figures indicated above are with respect to the minimum contributions. Members should check their payslips or EPF statements in order to get the exact details of contributions.
Income Tax Saving Benefits on EPF contributions
 Every employee’s contributions towards the EPF account are eligible for tax deductions under Section 80C of the Income Tax Act, 1961.
 The employer’s contribution is exempt from tax.
 The interest on the employer’s and employee’s contribution is also tax exempt.
 However, the tax benefit is subject to a minimum lockin period of 5 years. This implies that the employee will have to contribute towards the EPF for 5 years for the tax deduction to be availed.
Can you maximise EPF Interest in a financial year ?
The month end balance is taken as the baseline for the interest calculation. All employers would deposit the EPF amount during the month and raise the statutory filings. The EPF interest would increase only through salary increments. You can also contribute towards Voluntary Provident Fund and get similar interest rates. Employees would, however, need to check with their employers if this facility is available to them.
Employee Provident Fund Interest Rate 201718
The Finance Ministry has been in discussion with the Labour Ministry to reduce the interest rate on PF deposits. Earlier, the EPFO has been providing 8.65% interest rate on EPF deposits.The Finance Ministry wanted to bring down the rates due to the depleting yield of government securities and alternative savings instruments.
How Much Amount Will You Get on EPF Withdrawal
Calculation of the EPF amount involves the following steps:
 Identify your EPF contribution  This amount usually appears on your payslip as ‘PF deduction’. It will be either 12% of (Basic Salary + Dearness Allowance, if applicable) or 12% of Rs.15,000 i.e., Rs.1,800.
 Identify your employer’s contribution  This amount is usually stated in the offer letter; however, if you fail to identify it you may ask your employer. It will either be 12% of (Basic Salary + Dearness Allowance, if applicable) or 12% of Rs.15,000, i.e., Rs.1,800.
 Understand the component of EPS  Out of the 12% contributed towards EPF by the employer, 8.33% goes towards the Employee Pension Scheme, subject to the EPS contribution having a maximum cap of Rs.1,250. Hence, the actual contribution towards the EPF from the employer is 3.67%. So for calculation purpose:
 If your employer contributes 12% of Rs.15,000 = Rs.1,800, the EPF portion will be 3.67% of Rs.15,000 = Rs.550.
 If your employer contributes 12% of (Basic Salary + Dearness Allowance, if applicable), subject to EPS having a maximum cap of Rs.1,250, the actual amount that goes to the EPF is [12% of (Basic Salary + Dearness Allowance, if applicable)]  Rs.1,250.
 Observe the interest calculation  The simple interest on EPS is calculated on the basis of monthly contributions. This amount is further rounded off to the nearest rupee, and subsequently compounded annually.
Let us analyse this with an example. Consider a scenario where your contribution towards EPF and your employer’s contribution are Rs.1,800 each. Out of the employer’s contribution, only Rs.550 goes towards EPF, while the remaining Rs.1,250 goes towards EPS. If you had joined the company in November, your contribution for the first 5 months would be calculated as shown below:
Date  Employee Contribution (Rs.)  Monthly Interest at 9.5% per annum 
1st December  1,800 This is the contribution for November that was submitted in the EPF account on 1st December.  0 There was no interest earned, as there was no PF balance before 1st December. 
1st January  3,600 This is the sum of the contributions from November and December, i.e., 1,800 + 1,800 = 3,600  14.25 Interest is calculated as, 1,800 * 9.5% / 12, corresponding to the amount in this account before this date. 
1st February  5,400 This is calculated as 3,600 + 1,800 = 5,400  28.5 Calculation is, 3,600 * 9.5% / 12 
1st March  7,200 This is calculated as 5,400 + 1,800 = 7,200  42.75 Calculation is, 5,400 * 9.5% / 12 
This implies that your contribution for the entire financial year is Rs.7,200. At the end of the financial year, the final interest will be added to your contribution, and the interest calculation for the next year proceeds as in the table above.
Similarly, the employer’s contribution is as shown below:
Date  Employer Contribution (Rs.)  Monthly Interest at 9.5% per annum 
1st December  550 This is the contribution for November that was submitted in the EPF account on 1st December.  0 There was no interest earned, as there was no PF balance before 1st December. 
1st January  1,100 This is the sum of the contributions from November and December, i.e., 550 + 550 = 1,100  4.35 Interest is calculated as, 550 * 9.5% / 12, corresponding to the amount in this account before this date. 
1st February  1,650 This is calculated as 1,100 + 550 = 1,650  8.7 Calculation is, 1,100 * 9.5% / 12 
1st March  2,200 This is calculated as 1,650 + 550 = 2,200  13.06 Calculation is, 1,650 * 9.5% / 12 
This implies that your employer’s contribution for the entire financial year is Rs.2,200. At the end of the financial year, the final interest will be added to the employer’s contribution, and the interest calculation for the subsequent year proceeds as in the table above.
If you have updated the withdrawal option in Form 10C, a part of the EPS would be given back to you. Listed below are some facts on the same:
 The EPS portion of the employer’s contribution will not earn any interest, as indicated above.
 When you withdraw the EPS, you will not receive the full EPS amount. The sum that you receive depends on your service period, and is not dependent on the actual balance in the EPS corpus. The withdrawal amount will be calculated according to the table below:
Years of Service  Proportion of wages at withdrawal 

1  1.02 
2  1.99 
3  2.98 
4  3.99 
5  5.02 
6  6.07 
7  7.13 
8  8.22 
9  9.33 
 A fraction of service that spans 6 months or more is considered as 1 year, and service less than 6 months is ignored.
So, if you have completed 1 year and 5 months in your previous organisation, the years of service considered for EPS calculation will be 1 year. Even if your monthly salary was a large amount, for the purpose of EPS calculation, this amount can be considered as Rs.1,250 per month (or Rs.15,000 annually). So, the EPS amount that you will receive is, 1.02 * 15,000 = Rs. 15,300.
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