How To Calculate Employees’ Provident Fund Balance And Interest; Click To Know!

The Interest rate of EPF is reviewed every year after consultation with the Ministry of Finance by EPFO’s Central Board of Trustees. The PF interest rate of 2023  is fixed at 8.1%. Provident fund Interest rates for the last five years are mentioned below

EPF Interest Rate year-wise:

Every year, the interest rate for EPF is reviewed. During the fiscal year 2022–2023, the EPF interest rate is 8.10%. The interest rate is calculated for the month-by-month ending balance first, and subsequently for the entire fiscal year, after the EPFO announces the interest rate for it.

The fiscal year that runs from the year that begins on April 1 to the year that ends on March 31 of the following year is the one in which the new interest rates are released. Here are some important things to keep in mind regarding EPF Interest Rate:

• The interest rate of 8.10% has come into effect and will be applicable to EPF deposits made between April 2022 and March 2022.
• Even though the interest is calculated monthly, it is only deposited to the Employees’ Provident Fund account once a year on March 31st of the applicable fiscal year.
• The transferred interest is added to the next month’s balance, i.e. April’s balance, and is then used to calculate interest.
• If no contributions are made to an EPF account for 36 months in a row, the account becomes dormant or inoperative.
• Employees who have not reached retirement age might earn interest on their inactive accounts.
• Interest is not paid on funds put in retired employees’ inactive accounts.
• The interest collected on dormant accounts is taxed at the member’s slab rate.
• The employee will not receive any interest for payments made by the company to the Employees’ Pension Scheme. However, beyond the age of 58, a pension is provided out of this amount.

There are two parts to the contribution, namely the employer contribution and the employee contribution, depending on the organisation making the contribution to the EPF. The employee makes a 12% contribution to their EPF account from their base income plus dearness allowance (DA). If the company has fewer than 20 employees or if it is in a certain industry, such as jute, beedi, brick, etc., the employee must make a smaller contribution of 10%.

The employer contributes a similar amount to the scheme (12% of employee’s basic salary plus DA). 8.33% of such employer contribution goes towards the Employee Pension Scheme (EPS) subject to a ceiling of 1,250 per month if the salary of the employee is 15,000 or more and the rest 3.67% is added to the EPF account of the employee. The employer also contributes 0.50% towards Employees’ Deposit Linked Insurance (EDLI) account of the employee.

It is important to note that the employee has the option to voluntarily contribute more than the minimum statutory amount of 12%, which is known as a contribution to the Voluntary Provident Fund (VPF), which is tracked independently. Although the employer is not required to make any contributions to the VPF if the employee elects to participate in it, the VPF also offers tax-free interest.

How to Calculate PF Interest

Every month the interest rate is calculated but is deposited in the account at the end of the financial year. The interest calculation on the EPF of the employee is explained by the given example.

Basic Salary + Dearness Allowance = ₹ 30,000

Employee’s contribution towards EPF = 12% of ₹ 30,000 = ₹ 3,600

Employer’s contribution towards EPS (subject to limit of 1,250) = ₹ 1,250

Employer’s contribution towards EPF = (₹ 3,600 – ₹ 1,250) = ₹ 2,350