Mar 11

EPF Interest Rate Calculation

Team Antworks

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 the employee and also on the break-up of employer’s PF contribution

Division of EPF Contribution

EPF contribution is divided into the following two distinct parts –

Contribution made by employeeContribution towards EPF is deducted from employee’s salary. This is 12% of the basic salary of the employee.
Contribution made by employerContribution 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%

Important Points to Be Considered When Calculating EPF Interest Rate

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 contribution

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.

EPF Interest Rate 2017-18

The Finance Ministry has been in discussion with the Labour 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.

How Much Amount Will You Get on 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:
1. 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.
2. 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 analyse 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: