EPFO Interest Calculation: Generally the account holders of EPFO believe that interest is paid on the entire amount of Provident Fund deposit. But, it doesn’t happen.
EPFO Interest Calculation: A big announcement is going to be made soon for the Provident Fund subscriber. The interest for the current financial year can be decided in the CBT meeting on March 12. It is expected that interest rates can be kept constant at 8.5%. But, it is also discussed that in difficult times, it can also be cut on the basis of review of earnings of EPFO. The government pays interest on EPF every year on deposits in the EPF account. But, do you know how the interest is calculated in the EPF account?
Generally, account holders of EPFO believe that interest is paid on the entire amount of Provident Fund deposits. But, it doesn’t happen. There is no interest calculation on the amount that goes to the pension fund in the PF account.
How is interest calculated on EPF?
EPF interest calculation is done on the basis of deposit (Monthly Running Balance) every month in the EPF account. But, it is decided at the end of the financial year and then credited to the account. According to the rules of EPFO, if any amount is withdrawn in a year from the balance amount on the last date of the current financial year, then it is deducted 12 months interest. EPFO always takes the opening and closing balance of the account. To calculate this, the monthly running balance is added and multiplied by the rate of interest / 1200.
Withdrawal leads to loss of interest
If any amount is withdrawn during the current financial year, then the amount of interest (PF interest calculation) is taken from the beginning of the year to the month immediately preceding the withdrawal. The year’s closing balance (EPF Balance) will be its opening balance + contribution-withdrawal (if any) + interest.
Think of it as
- Basic Salary + Dearness Allowance (DA) = ₹30,000
- Employee Contribution EPF = 12% of ₹30,000 = ₹3,600
- Employer Contribution EPS (subject to limit of 1,250) = ₹1,250
- Employer Contribution EPF = (₹3,600-₹1,250) = ₹2,350
- Total Monthly EPF Contribution = ₹3,600 + ₹2350 = ₹5,950
Contribution in EPF
- Total EPF contribution in April = ₹ 5,950
- Interest on EPF in April = Nil (No interest in first month)
- EPF account balance at the end of April = ₹5,950
- EPF contribution in May = ₹ 5,950
- EPF account balance at the end of May = ₹11,900
- Monthly interest calculation (EPF Interest calculation) = 8.50%/12 = 0.007083%
- Calculation of interest on EPF for May = ₹ 11,900 * 0.007083% = ₹ 84.29
This formula is used for calculation
The interest rate for any financial year is notified by the government. At the end of the current financial year, the calculation of interest (EPF interest) is done. By adding the balance amount on the last date of every month of the year, dividing that amount by dividing the fixed interest rate by 1200, the interest amount is extracted.
