EPF Contribution by Employee and Employer
Before you calculate the interest on your EPF account, you must understand how contributions to you EPF account balance are made. First, there is the employee contribution which may either be 12%, 10% or 8% (in the case of women employees) of basic pay plus dearness allowance for the first 3 years of employment. Theemployer EPF contributionwill match that at 12% or 10%. An employer is eligible to pay 10% if the company in question has fewer than 20 employees, has sick units, or meets certain specific conditions that are specified by the EPFO.
Understanding the wage ceiling
If your income exceeds Rs. 15,000, your employer is free to make contributions based on one of three methods:
- Your employer may choose to restrict both your contributions to Rs. 15,000 per annum.
- Your employer may choose to continue to match your contribution even over the wage ceiling.
- Your employer may allow you to contribute 12% of your basic pay plus dearness allowance while they restrict their share of the contribution to the celling of Rs. 15,000.
Details Required to Calculate EPF Interest Rate
- Employee's current age
- Retirement age
- Percentage of contribution to EPF
- Monthly basic salary and dearness allowance
- Current EPF balance
How to Calculate PF Interest
The interest on your PF balance is computed monthly but only credited to your account at the end of the financial year, specifically on March 31 each year. To calculate the interest on your EPF, you employ the step method: multiply your closing balance at the end of the month by the current PF interest rate and divide by 12.
For example, the rate for the 2016 financial year was 8.8%, the interest rate for 2017 was 8.65% and the rate for the 2018 financial year was 8.55%.
If we assume the rate of interest for EPF to be 8.65% and your basic salary plus dearness allowance to be Rs. 50,000. You as an employee will contribute 12% of the total amount, which equals Rs. 6,000.
Let’s say your employer chooses to contribute 12% of your basic salary, minus 8.33% of Rs. 15,000 towards the EPS (Rs. 6,000 – Rs. 1,259.50).
This amounts to Rs. 4,750, when rounded off.
The opening balance in your account will be Rs. 10,750.
Step method
The interest accrued in the first month is zero, as the opening balance is zero. In the second month, the interest will be calculated on the opening balance of Rs. 10,750.
Assuming the interest rate is 8.65% per annum, your monthly interest will be
8.65% / 12 = 0.72%
Therefore, your monthly interest will be 0.72%*10,750 = Rs. 77.4, which will be rounded off to Rs. 77.
Formula method
If the EPF balance is Rs. 10,750, and the rate of interest is 8.65%, you can calculate interest according to this formula:
(8.65% / 12)*10,750 = Rs. 77.4 = Rs. 77
The closing balance for the year, which will go on to be the opening balance for the next year, will consist of the balance at the end of 12 months plus the total interest accrued in that year.
You can also use online calculators like this one to calculate your EPF.
EPF Interest Rate for Inactive Accounts
When an Employee Provident Fund account remains inactive for 36 months due to no contributions, it becomes dormant. This often occurs when an employee forgets to transfer the account from the previous employer to the new one.
From 2016, your dormant Employee Provident Fund account will also accumulate interest based on the prevailing rates.
Withdrawals from EPF
You will be eligible to withdraw the full amount of yourEPFonly when you reach 58 years of age, or when you have been unemployed for more than two months. You may be able to make withdrawals before time under specific circ*mstances such as:
- If you are using the money to cover medical expenses or pay off a home loan
- If you have been unemployed for more than 60 days or are intending to move abroad permanently
If you are 57 years old, you are eligible to make a withdrawal of up to 90% of the total amount, without any restrictions. All withdrawals made after 5 years are exempt from tax. If you make a withdrawal within 5 years; however, you will be required to pay income tax on that amount.
Conclusion
In conclusion, calculating the interest on your EPF balance is a straightforward process that allows you to monitor the growth of your savings effectively. By following the steps outlined in this article, you can easily estimate the interest you'll earn on your EPF balance, ensuring that you are well-prepared for retirement and any financial goals you have in mind. So, start crunching those numbers and take charge of your financial well-being.
Calculate your expected investment returns with the help of our investment calculators
Investment Calculator | ||||
SIP Calculator | FD calculator | SDP calculator | Gratuity Calculator | Lumpsum Calculator |
Step Up SIP Calculator | Sukanya Samriddhi Yojana Calculator | PPF Calculator | RD Calculator | Brokerage Calculator |
Frequently asked questions
Will an individual get interest on PF after retirement?
You will receive EPF interest for a maximum of 3 years post-retirement. Once there's no contribution for 3 years, the EPF account becomes inactive, and you will not earn interest.
Can I withdraw my EPF funds when I am unemployed?
Yes, you can withdraw EPF funds when you are unemployed for more than two months.
What are the Withdrawal permissions from EPF amount including epf interest under the rule?
Under usual circ*mstances, an employee can claim the principal amount along with accrued interest upon retirement. Nevertheless, individuals aged 54 or older have the option to withdraw up to 90% of the accumulated balance. Additionally, if an individual remains unemployed for a period exceeding 60 days, they are eligible to withdraw the entire accumulated balance at that time.
What is a Universal Account Number (UAN)?
A Universal Account Number (UAN) is a unique identifier provided to EPF members, helping them manage their provident fund accounts efficiently.
Can you avail advances against your EPF balance?
Contributions to the scheme are designed to address post-retirement needs, yet individuals need not wait until retirement to access financial assistance for specific obligations. These advances are permissible under specific circ*mstances, such as purchasing a home, repaying a home loan, funding education or weddings, etc. Unlike loans, there is no obligation to repay the advances obtained.
What are the Income tax exemptions on EPF?
Contributions, accrued interest, and withdrawals fall under the income tax exemption: EEE model. Contributions of up to Rs. 1,50,000 are eligible for deduction under Section 80C of the Income Tax Act.
What are the Contribution limits to Voluntary Provident Fund Scheme?
The contribution limits to the Voluntary Provident Fund Scheme mirror those of the Employee Provident Fund (EPF), where an employee can voluntarily contribute up to 100% of their basic salary and dearness allowance.
Show More Show Less
