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  • EPF Interest Rate Calculation

    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 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.

    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.


    Employee Contribution (12%)

    Employer Contribution (3.67%)

    Monthly balance at the end of month

    Interest applicable





    Nil. Just Joined.




    1567+1567 = 3134

    1567*8.75%/12 = Rs.11




    3134+1567 = 4701

    3134*8.75%/12 = Rs.22




    4701+1567 = 6268

    4701*8.75%/12 = Rs.34.27




    6268+1567 = 7835

    6268*8.75%/12 = Rs.45.70




    7835+1567 = 9402

    7835*8.75%/12 = Rs.57.13




    9402+1567 = 10969

    9402*8.75%/12 = Rs.68.55




    10969+1567 = 12536

    10969*8.75%/12 = Rs.79.98




    12536+1567 = 14103

    12536*8.75%/12 = Rs.91.40

    Total EPF Balance at the end of the year



    14103+1567 = 15670


    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.

    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.

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