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How to Calculate Interest on EPF?

The interest rate on EPF is calculated on your income every month, but it gets deposited in the account only at the end of the financial year. The following will give you a clear idea about how EPF interest rate is calculated on your monthly income:

Let’s say Mr. Sharma’s Basic Salary + Dearness Allowance is Rs. 20,000

Employee’s contribution towards EPF = 12% of Rs. 20,000 = Rs. 2,400

Employer’s contribution towards EPS = 8.33% of Rs. 20,000 = Rs. 1,666

Hence, according to the above calculation

Employer’s contribution towards EPF = Employee’s contribution towards EPF – Employer’s contribution towards EPS

Employer’s contribution towards EPF = Rs. 734

Total EPF contribution for April = Rs. 2,400 + Rs. 734 = Rs. 3,134

The EPF interest rate for the FY 2018-2019 is 8.65%. Therefore, the monthly EPF interest rate would be = 8.65%/12 = 0.7208%

Breakup of EPF Contribution

  • Employee’s contribution - 12%
  • Employer’s contribution – 3.67%
  • Employer’s contribution towards EPS – 8.33%
  • Interest rate for contribution towards Contribution for EDLI (Employee’s Deposit Linked Scheme) – 0.5%
  • Contribution for EPF administration charges – 1.1%
  • Contribution towards EDLI administration charges - 0.01%

Calculation of EPF Withdrawal

  • The amount that an employee contributes towards his/her EPF is mentioned on his/her payslip under the category named ‘PF deduction’. It will be either of the following, as offered by the employer:
    • 12% of Rs.15,000, which is Rs.1,800, irrespective of the employee’s monthly salary, or
    • 12% of (Basic Salary + Dearness Allowance, if applicable)
  • The employer’s contribution towards an employee’s EPF is generally mentioned in his/her offer letter. In case it isn’t, make sure that you confirm it from your employer before you join the organisation. It will either be 12% of Rs.15,000, which is Rs.1,800, irrespective of the employee’s monthly salary, or 12% of (Basic Salary + Dearness Allowance, if applicable)
  • The breakup of the employer’s contribution of 12% comprises - 8.33% towards the Employee Pension Scheme, up to a maximum of Rs.1,250. Therefore, the final contribution towards the EPF from the employer is 3.67%.

Example 1

Let’s discuss how an employee’s monthly contribution towards EPF will be calculated when the employee has joined the organisation in May. The employer and employee will contribute Rs. 1,800 each towards EPF. Out of the Rs. 1,800 that will be contributed by the employer, Rs. 550 will go towards EPF. The balance Rs. 1,250 will get contributed towards EPS.

  • 1st June Contribution for May, as submitted in the EPF account on 1st June, is Rs. 1,800
  • 1st July Contributions of Rs. 1,800 for June totals to Rs. 3,600
  • 1st August A further contribution of Rs. 1,800 for July takes the total to Rs. 5,400

Similarly, the employer’s contribution is as shown below:

  • 1st June Contribution for May as submitted in the EPF account on 1st June = Rs. 550
  • 1st July Contributions of Rs. 550 for June brings the total to is Rs. 1,100
  • 1st August Another Contribution of Rs. 550 takes the total to Rs. 1,650 The EPF interest will be added to your and employer contribution as per the applicable interest rate at the end of that financial year, and the same interest calculation process is repeated in the next financial year.

FAQs on EPF Interest Rate

What is the EPF interest rate?

The EPF interest rate as per April 2019 is 8.65%.

Is there any interest on EPF?

Yes, interest amount is payable on EPF, provided your account is not dormant.

Is EPF eligible for compound interest?

For EPF, compound interest is payable on the EPF balance of an employee outstanding against his/her name as on 1st April of a financial year.

Will I get interest on my PF amount after leaving job?

As per new regulations passed in 2016, a PF account is termed as inoperative when an employee does not withdraw the balance in his/her PF account within 36 months of retirement, post reaching 55 years of age. Hence, even after a professional leaves a job, the PF account continues to attract interest and is not considered to be inoperative till the time he/she reaches 55 years of age.

How PF is calculated on salary?

An equal amount – 12% of Rs. 15,000 or 12% of (Basic Salary + Dearness Allowance, if applicable) – is contributed to PF by the employer as well as the employee.