Everything you should know about EPF and EPF Interest

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

When an 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 EPF interest rate for the fiscal year 2019-20 is 8.5%.

What is an EPF calculator?

The EPF interest calculator is a web-based tool that is used for calculating the EPF amount at retirement. Essential information, such as the retirement age, baseline monthly salary, annual projected salary rise, and EPF contribution, is required for calculating EPF.

You plan your retirement using the expected value of retirement. You can calculate whether the amount formed will cover your financial needs in retirement. Therefore, 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 determine how an 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%. The monthly EPF interest rate can be calculated as follows:

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). The employee receives Rs 6,288 * 0.70833% = Rs 44.54 in interest.

The calculation is repeated for subsequent months.

What do you need to know about EPF contributions?

  • EPF contributions are not deducted solely from the employee. The employer is obligated to make equal monthly contributions to your EPF account monthly.
  • Employees must link their UAN to their Aadhaar number and bank account.
  • The employee can nominate any person as a beneficiary for your EPF account. The nominee is paid the account balance in the event of the account holder’s death.
  • The nominee can be changed by sending Form 2 to your company’s finance department or the EPFO department.
  • The Employee Pension Scheme receives approximately 8.33% of 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 an employee quits your work and wants to withdraw the balance from your EPF account once and for all, you will 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% 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 10 years, you can only withdraw money from your EPS account using the slabs based on your previous drawn pay, as shown in the following Table ‘D’:
No. of years of Service Eligible portion of EPS withdrawal
1 1.02
2 1.99
3 2.98
4 3.99
5 5.02
6 6.07
7 7.13
8 8.22
9 9.33
  • An employee need not withdraw your EPF payments or close your account when you change jobs. Simply provide 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 us pretend that an employee began contributing in August 2020.

Starting month of contributions August 2020
Interest Rate (p.a.) 8.5%
Monthly Interest Rate 8.50/12 = 0.7083%
Employee’s Contribution 12% of Rs 20,000 = 2400
Employer’s Contribution Rs 2400 (8.33% in Pension, 3.67% in EPF)
Actual contribution of Employers to EPF Account 3.67% of Rs 20,000 = 734
Total monthly contribution in EPF account Rs 2400 + Rs 734 = 3134

The balance calculation for the next month of September 2020 will be 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 details are required for calculating the EPF interest rate?

For calculating the EPF interest, you will require 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 is 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 is credited. The interest rate for the fiscal year 2019-20 is 8.5%. Therefore, the interest rate will be 0.708%, or 8.5%/12, for each month’s interest computation.

What is the eligibility criteria for EPF?

The eligibility criteria for EPF is as follows:

  • Employees must join the scheme and become active members to receive its benefits.
  • Employees of a company are automatically eligible for EPF, 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

EPF and Miscellaneous Provisions Act,1952, governs EPF calculation and disbursal. The 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 because it provides tax benefits. The EPF interest helps employees generate more revenue and save more money over the long term. Both the employer and the employee contribute money to the fund. Each month, both employer and employee must contribute 12% of the employee’s basic wage (Basic + Dearness allowance) to this fund.

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 on the contribution.

FAQs

Is it necessary to contribute to EPF?

Yes, contribution to the EPF is mandatory.

What is meant by 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%.