About EPF Interest Rate
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.
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 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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Breakup of EPF Contribution
 12% of the employee’s salary goes towards the EPF.
 Whereas the employer’s contribution is divided as below:
 3.67% goes towards contribution for EPF
 8.33% goes towards contribution for EPS
 0.5% goes towards contribution for EDLI
 1.1% goes towards contribution for EPF administration charges
 0.01% goes towards contribution for EDLI administration charges
Therefore, the employer contribution is 13.61%. The premium and management charges are borne by the employer and the maximum limit is set at 0.5% of Rs.15,000.
The EPF contribution can be offered at 10% rate, if:
 Any establishment that has less than 20 employees.
 Any sick unit that has been declared as sick by the Board for Industrial and Financial Reconstruction.
 Any establishment that has accumulated losses equal to or exceeding its net worth.
 Establishments in jute industry, beedi industry, coir industry and Guar gum factory.
Contribution to EPF by Women Employees
As per the Union Budget 2018, in order to encourage more women to start working in the private sector, the contribution towards EPF has been decreased to 8% for the first three years. However, the employer’s contribution towards EPF remains the same. Earlier, depending on the organisation, the contribution made by women employees were either 10% (for organisations with less than 20 employees) or 12%.
EPF contribution for new Employees 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.
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.
Note the points while Calculating the 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 Interest of EPF Scheme?
It is vital to understand the contributions that are being made to an individual’s Employee Provident Fund (EPF) account before calculating the interest. The employee and employer each contribute a certain percentage of the employee’s basic salary towards EPF. The employee contributes either 10% (if there are less than 20 employees working under the organisation), 12%, or 8% (in case of women employees) towards EPF.
The employer contributes 12% of the employee’s basic salary towards EPF. Out of the 12%, 8.33% goes towards Employee Pension Scheme (EPS) and the remaining 3.67% is towards EPF. Therefore, in total an employee earns either 13.67%, 15.67%, or 11.67% towards EPF. In 2018, the rate of interest on EPF contributions made by the employee and employer is 8.55%.
EPF Interest Rate
In a move that would benefit 60 million subscribers, the Employees Provident Fund Organisation (EPFO) has increased the Employees Provident Fund (EPF) interest rate from 8.55% to 8.65% for 20182019. The decision sees a 10basis point increase from the interest rate for 20172018.
The interest rate is lesser than the 8.8% for 20152016, but the same as it was for 20162017. The increase is seen as a sop for salaried employees as it is an election year. Due to an increase in interest rates, the EPFO will only have a surplus of Rs.151 crore. For 20172018, the EPFO had a surplus of Rs.586 crore. The increase in interest rates makes EPF as one of the most beneficial savings schemes. However, the hike in interest rates needs approval from the finance ministry.
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.But for the financial year 20172018, the EPF interest rate is 8.55%.
The latest EPF interest rate stands at 8.8% p.a. (2015  2016). Interest rate for EPF deposits for the year 2017  2018 is 8.65%
 Balances held in the EPF account earn interest. Such interest earned is entirely taxfree. Interest is calculated and credited to the account based on a set rate of interest.
 As with many other staterun savings schemes, EPF interest rates are decided every year by the Indian government in conjunction with the Central Board of Trustees (CBT) who administer the Act in association with the EPFO. The rate announced is applicable for the year it is announced.
 The year for which EPF interest rates are applicable refers to a financial year i.e. April 1st of one year to March 31st of the following year. For e.g. for the period 2014  2015, the interest rate of 8.75% is applicable on EPF deposits from April 1st 2014 to March 31st 2015.
 Interest is calculated based on monthly running balances but credited on an annual basis, at the end of the year i.e. March 31st. Interest so credited is then added to the following month’s balance i.e. it is included in April’s balance for interest calculation.
 If an EPF account is deemed inoperative, interest will no longer be credited to it.
 Interest is not payable on withdrawn amounts.
 Interest is not payable on the amounts directed towards EPS by the employer.
After a discussion with the Ministry of Finance, the Employees’ Provident Fund Organisation (EPFO) decides the Employees Provident Fund (EPF) rate of interest at the end of every financial year. The employer and employee each contribute 12% of the employee’s salary towards EPF. While the entire contribution of the employee goes towards EPF, only 3.67% of the employer’s contribution goes towards EPF. The remaining 8.33% goes towards pension. The EPF interest rates have been fluctuating since 1952.
Below is a table of EPF interest rate from 1952 to 2018:
Year/Period  Interest Rate (p.a.) 

1952  1955 
3.00% 
1955  1957 
3.50% 
1957  1963 
3.75% 
1963  1964 
4.00% 
1964  1965 
4.25% 
1965  1966 
4.50% 
1966  1967 
4.75% 
1967  1968 
5.00% 
1968  1969 
5.25% 
1969  1970 
5.50% 
1970  1971 
5.70% 
1971  1972 
5.80% 
1972  1974 
6.00% 
1974  1975 
6.50% 
1975  1976 
7.00% 
1976  1977 
7.50% 
1977  1978 
8.00% 
1978  1979 
8.50% (i.e. 8.00% + 0.5% as bonus) 
1979  1981 
8.25% 
1981  1982 
8.50% 
1982  1983 
8.75% 
1983  1984 
9.15% 
1984  1985 
9.90% 
1985  1986 
10.15% 
1986  1987 
11.00% 
1987  1988 
11.50% 
1988  1989 
11.80% 
1989  2000 
12.00% 
2000  2001 
12.00%  till June 2001 11.00%  From July 2001 
2001  2004 
9.50% 
2004  2005 
9.50% (i.e. 9.00% + 0.5% as Golden Jubilee Bonus ) 
2005  2010 
8.50% 
2010  2011 
9.50% 
2011  2012 
8.25% 
2012  2013 
8.50% 
2013  2015 
8.75% 
2015  2016 
8.8% 
2016  2017 
8.65% 
20172018 
8.55% 
Calculation of 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 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.
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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