Know How to Calculate Employees' Provident Fund Balance and Interest

 

Employees Provident Fund (EPF) is a retirement saving option that is specially meant for the long term. Any company with 20 or more employees is enabled with the option to deduct EPF. For EPF, an employee contributes 12 per cent of the basic salary while the employer contributes 8.33 per cent towards Employees’ Pension Scheme and 3.67 per cent to employees’ EPF.

The total of the employee and employer contribution is deposited in a fund created with the Employee Provident Fund Organization. An interest amount based on the monthly operating balance is awarded and added to the fund at the end of the financial year. EPF deduction is mandatory for employees who draw a salary less than Rs 15,000, but others can opt-out of this scheme through a declaration made in Form 11 of EPFO.

What is the current EPF interest rate?

EPFO decides on the interest rate to be provided to EPF funds on yearly basis. The rate of interest depends on the market condition and is vetted by the Finance Ministry of the Central Government. The current interest rate of the EPF fund is set at 8.5 % p.a. which remains unchanged from the interest rate of the financial year 2020-21.

EPF Interest calculation

Here’s the EPF interest calculation, if we assume the EPF basic salary and dearness allowance to be Rs 15,000 and the current interest rate is 8.5 per cent.

Basic Salary + D.A. = Rs 15,000

Employee’s Contribution towards EPF = 12 % of Rs 15,000 i.e. Rs 1800

Employer’s contribution towards EPS = 8.33% of Rs 15,000 = Rs 1250

Employer’s contribution towards EPF = 3.67% of Rs 15,000 = Rs 550 (round of Rs 550.5)

Total contribution = Rs 2,350

Current interest rate is 8.5% p.a.

Since the interest is calculated on monthly operating balance, the interest applicable per month is = 8.50%/12 = 0.7083%

EPF contribution for first month = Rs 2,350

No interest on EPF for first month

Second month contribution = Rs 2,350

Total EPF balance = Rs 4,700

Interest on the EPF contribution for May = ₹ 4,700 * 0.7083% = ₹33.29

Interest rate on inoperative EPF account

An EPF account becomes inoperative in case an employee retires from the service after attaining 55 years of age or dies or migrates abroad permanently and application of withdrawal of his/her accumulated funds is not made within 36 months. Until such time, the interest amount will continue to accrue on the PF corpus.