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Everything you should know about EPF and EPF Interest

The Employee Provident Fund, or EPF, is a retirement savings system open to all salaried employees sponsored by the government and paid fixed interest. The Employees Provident Fund Organization (EPFO), a statutory body under the Ministry of Labor and Employment, manages the employee provident fund. It got established to manage the mandated contributions to the PF programme made by both employees and employers.

When the employee retires, he or she receives a lump sum amount of EPF, which includes the employee’s and the employer’s contribution, and the interest amount credited each year. The interest rate on EPF accounts is reviewed monthly by the government. The announced EPF interest rate for the fiscal year 2019-20 is 8.5 per cent. Let’s how the EPF interest calculator works and how to calculate it.

What is an EPF calculator?

EPF interest calculator is a web-based tool that assists in calculating the EPF amount at retirement. All you need to enter is your essential information, such as your retirement age, baseline monthly salary, annual predicted salary rise, and EPF contribution.

You plan your retirement using the expected value of retirement. You can calculate whether the amount formed will cover your financial needs in retirement. As a result, you consider whether or not you need to invest more in other investment options to meet your financial needs.

How does the EPF calculator work?

Let us look at an example to see how the EPF interest calculator works.

Employees basic salary + dearness allowance = Rs 20,000

Employees contribution towards the EPF = 12% * 20,000 = Rs 2,400

Employers contribution towards the EPF = 3.67% * 20,000 = Rs 734

Employers contribution towards EPS = 8.33% * 20,000 = Rs 1,666.

The total contribution by the employer and employee to the employee’s EPF account is Rs 2,400 + Rs 734 = Rs 3,134.

For the fiscal year 2020-21, the interest rate is 8.5 per cent.

As a result, the monthly EPF interest rate is:

8.5%/12 = 0.70833%

Assume the individual began working for Firm ABC in April of 2019. For April, the total EPF contribution will be Rs 3,134. For April, the EPF scheme will not pay any EPF interest.

For the month of May, the total EPF contribution is Rs 6,268 (Rs 3,134+ Rs 3,134). He receives Rs 6,288 * 0.70833 percent = Rs 44.54 in interest.

The calculation is repeated for the following months.

What do you need to know about EPF contributions?

  • Your EPF contributions are not deducted solely from your pay. Likewise, your employer is obligated to make equal monthly contributions to your EPF account.
  • Employees must link their UAN to their Aadhaar number and bank account.
  • Anyone can get nominated for your EPF account. The nominee will pay the account balance in the event of the account holder’s death.
  • You can change the nominee by sending Form 2 to your company’s finance department or the EPFO department.
  • The Employee Pension Scheme will get around 8.33 per cent of your employer’s monthly contribution (up to Rs 1,250). (EPS). When you retire and meet certain criteria, you will be eligible for a monthly pension.
  • If you quit your work and want to withdraw the balance from your EPF account once and for all, you’ll only be able to withdraw a fraction of it, depending on the reason for withdrawal. Unemployment, retirement, land purchase, house purchase/construction, house renovation, wedding, education, home loan repayment, and medical reasons are all viable reasons.
  • You can withdraw 100 per cent of your EPS account balance if you are retired and have worked continuously for the past ten years.
  • If you have not worked continuously for the past ten years, you can only withdraw money from your EPS account using the slabs based on your previous drawn pay, as shown in Table ‘D’ below:
    No. of years of ServiceEligible portion of EPS withdrawal
    11.02
    21.99
    32.98
    43.99
    55.02
    66.07
    77.13
    88.22
    99.33
  • You don’t have to withdraw your EPF payments or close your account when you change jobs. Simply give your UAN to your new employer. Your new employer’s PF number will still be associated with your previous UAN.
  • By completing Form 13, you must manually transfer the PF account balance from your prior job to the PF account established by your new company. Alternatively, you can use Form 11 to transfer your PF contributions to the new account automatically.
  • You can use the EPFO website or the UMANG app to check your EPF account balance, request a transfer, claim status, request a withdrawal, and file a grievance.

EPF interest rate calculations

Let’s pretend that an employee began contributing in August 2020.

Starting month of contributionsAugust 2020
Interest Rate (p.a.)8.5%
Monthly Interest Rate8.50/12 = 0.7083%
Employee’s Contribution12% of Rs 20,000 = 2400
Employer’s ContributionRs 2400 (8.33% in Pension, 3.67% in EPF)
Actual contribution of Employers to EPF Account3.67% of Rs 20,000 = 734
Total monthly contribution in EPF accountRs 2400 + Rs 734 = 3134

The balance calculation for the next month of September 2020 will be done as follows:

Balance which is carried forward from August 2020 = Rs. 3,134

Balance at the end of September 2020 = Rs. 3,134 + Rs. 3,134 = 6268.

What are the details needed to calculate the EPF interest rate?

To calculate EPF interest, you’ll need the following information:

  • The employee’s current age.
  • EPF balance at the moment.
  • A monthly basic and dearness allowance of up to Rs.15,000 is available.
  • Contribution percentage to the EPF.
  • The retirement age.

The EPF contribution gets credited to the EPF account, and interest is calculated every month. However, at the end of the financial year, the whole interest for the year will be credited. The interest rate for the fiscal year 2019-20 is 8.5 per cent. As a result, the interest rate will be 0.708 per cent, or 8.5 per cent/12, for each month’s interest computation.

What is the eligibility criteria for EPF?

The eligibility criteria for EPF is:

  • Employees must join the scheme and become active members to receive its benefits.
  • Employees of a company are automatically eligible for Provident Fund, insurance, and pension benefits from the day they start working.
  • Any company with a minimum of 20 employees must provide EPF benefits to its employees.

Conclusion

Employee Provident Fund and Miscellaneous Provisions Act,1952 governs EPF. EPF interest is invaluable for paid individuals to save and build sufficient retirement money. A person’s job may change multiple times during their career. However, under UAN, this program’s benefit is continually increased.

EPF is a great investment opportunity since it provides tax benefits. The EPF interest help employees to generate more revenue and save more money over the long term. Both the employer and the employee contribute money to the fund. Each month, each must contribute 12% of the employee’s basic wage (Basic + Dearness allowance) to this fund.

So, when a person retires, they are given a lump-sum payment with interest for their total contribution (both employee and employer). EPFO determines the rate of return that will be earned.

FAQs

Is it necessary to contribute to EPF?

Yes

What is meant by the salary in EPF interest?

Salary for this purpose means basic salary + dearness allowance.

Who is responsible for making EPF contributions?

Your employer is completely responsible for depositing all funds deducted from the employee and the employer contribution.

What is the current EPF interest rate?

The EPF interest rate for FY13 is 8.50 per cent.

About Author

A law aspirant and a final year student at Lloyd Law College.

I always had an inclination towards corporate and commercial laws because of their impressive and organized work structure with everyday challenges.

I am a dedicated person who is able to express honest opinions and keep patience in stressful situations.