EPF Interest Rate Calculation

What is EPF scheme?

EPF is a savings scheme that is offered to almost every individual who works in any organisation, whether it is a private, public, or government organisation. This scheme helps every employee in preparing for his or her retirement effectively. This scheme provides a maturity amount and interest that is free of tax. With these two benefits, one can enjoy excellent growth of their funds. This scheme aims to help individuals in the country to be financially secure even after their retirement.

The EPF scheme is provided by the Employees' Provident Fund Organisation (EPFO), which covers all organisations that have 20 or more employees. There are a few companies that have lesser than 20 employees, which come under the EPFO.

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.

Learn to Compute the Balance & Interest on Employees’ Provident Fund

Have you ever wanted to calculate the interest or balance on your Employees’ Provident Fund (EPF) scheme? If you are worried that it might be too complex, you do not have to worry. You only need to understand the contributions made by you as an employee and your employer. Before we discuss the method to compute the interest and balance on your EPF scheme, let us understand some of the main aspects of an EPF scheme.

How to Calculate Interest on your EPF Scheme

In order to compute the interest on your EPF scheme, you must know the contributions made by you and your employer. Typically, the employee contribution will be around 10% or 12% of your basic pay along with the dearness allowance (DA). This 10 to 12% contribution will comprise Employees' Deposit Linked Insurance (EDLI) scheme as well as the Employee Pension Scheme (EPS).

At present, the EPF Interest Rate is 8.65% 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 break-up 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.

Contribution to EPF by Women Employees

With the Union Budget 2018, the employee contribution of working women has been decreased. This was done to promote employment of women specifically in the formal sector of the country. Earlier, the contribution was 10% or 12%, which would be determined as per the organisation. After the Budget 2018, it is 8% for women for the initial 3 years of being employed. The employer contribution will continue to be 10% or 12%.

EPF contribution for new Employees who will be covered by the EPFO

If you are a new employee who will be covered by the EPFO, then your employer will not make any contribution. Instead, the government will make this contribution, which will be 10% or 12%. This will be paid for the initial 3 years of the person’s employment and it will include both EPS and EPF. The payment will be made even to the existing beneficiaries whose 3 years haven’t exhausted. It has been declared that the government will make this contribution exclusively for new employees who are registered until 31 March 2019.

Breakup of the EPF Contribution

The contributions for EPF are usually calculated on a wage ceiling, which will be Rs.15,000. This wage ceiling will include dearness allowance and basic salary. If the present income of the employee is higher than the wage ceiling, then the employer can utilise any of the 3 methods:

Contribution by employer	Contribution by employee
3.67% of Rs.15,000	12% of basic pay along with dearness allowance
3.67% of Rs.15,000	12% of Rs.5,000
12% of basic pay, which is 8.33% of Rs.15,000	12% of basic pay along with dearness allowance

After computing the contributions made by the employer and the employee, the interest on these contributions is computed. The EPF interest is computed according to the running balance of each month. The interest will be calculated on the opening balance of every month. In month 1, the opening balance will be 0 and hence, the interest will also be 0. For month 2, the interest will be calculated on the balance of the previous month. This same method will be followed for calculating the interest for each month.

Division of EPF Contribution

EPF contribution is divided into the following two distinct parts –

1. Contribution made by employee

   Contribution towards EPF is deducted from employee’s salary. This is 12% of the basic salary of the employee.

2. 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.

1. Employer may restrict your contribution as well as the company’s to Rs.15,000 per annum
2. Employer may contribute towards EPF an amount equal to employee’s own contribution
3. 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.

Table 1. Example of EPF Calculation

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 EPFcontribution. 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.

How to Calculate the Balance on your EPF

Towards the end of the year, the employer contribution and the employee contribution are added along with the overall interest that is earned over the year. This amount will be the closing EPF balance for that particular year. It will be used as the opening balance in the next year.

EPF Calculators

If you think that calculating your final EPF fund is confusing, you can utilise an online EPF calculator. This will tell you how much money you will accrue by the time you retire. There are many third-party sites that offer easy and hassle-free EPF calculators. Each calculator will have different fields. You will basically have to key in details such as your age, your monthly basic income, retirement age, contribution made by your employer, your present EPF interest rate, and your present EPF balance. You will then arrive at the EPF fund that will be available post your retirement.

Since EPF contributions are reduced from your income, the EPF scheme has an Exempt, Exempt, Exempt (EEE) status. The returns generated by EPF schemes are great, and if they are withdrawn after working for 5 years continuously, you do not have to worry about any tax. You can withdraw your full EPF balance once you reach the age of 58 years or if you have been unemployed for a 2 or more months uninterruptedly.

Recent changes with respect to EPF contributions

For the year 2014-2015, 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.

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 lock-in 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 maximize 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 2017-18

The Finance Ministry has been in discussion with the Labor 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:

1. 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.
2. 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.
3. 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:
   1. 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.
   2. 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.
4. 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 analyze 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:

• 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 organization, 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.

Table 2. Limits of EPS Withdrawal

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.