How to Calculate Interest Rate on my EPF Balance?

How to Calculate Interest Rate on my EPF Balance?

October 22, 2019 0 By Sachi kaushik

Employee Provident fund is a type of investment instrument which can only be used by working professionals. This is because the EPF account can only be opened by organisations, and the employees can access them once it is created. One more reason for this is because a part of the EPF balance is contributed by the employee’s organisation.

Employees’ Provident Fund is managed and supervised by the Employees Provident Fund Organisation, which was founded by the Central Government of India. EPFO looks after all the aspects of the EPF. Every employee with a starting salary of less than Rs 15000 is obliged to be a member of the EPFO. Employees with a salary of more than the mentioned amount can also be a member with the permission of their employer and the Assistant PF Commissioner.

There are several benefits of having a PF account, such as a life cover and pension plan. Moreover, it is also a tax saving investment scheme. Along with these benefits, one drawback of PF is that your investment is locked for a long term, and you can only access it for some specific reasons. High-interest rate is another benefit of having an EPF account. Therefore, it is essential to know how to calculate your interest on the funds invested in the PF account contributions.

Understanding EPF Contributions

 

A part of your PF contribution is done by your employer. Keeping this in mind, it is crucial to understand how your PF contributions are made by your organisation. Usually, Interest rates on EPF account are slightly higher than bank fixed deposits.

The employers’ contribution to the employees’ PF balance is divided into the categories given below:

  • Employee Provident Fund – 3.67%
  • Employee Pension Scheme – 8.33%
  • Employee Deposit Linked Insurance – 0.5%

The Government of India made it compulsory for the employer to provide a 12% EPF contribution to the employees for the first three years who have become EPFO members before the 31st March of the year of employment.

Ceiling Wage

 

Rs 15000 is referred to as the ceiling wage when it comes to Provident Funds. This amount is referred to as the ceiling wage because it is the minimum eligibility criteria for the employee to have a starting salary of 15000 Rs or less. The organisation is supposed to contribute to the employees’ PF balance based on the ceiling wage, but they have various options when the employee’s salary is more than the ceiling wage. The organisation can contribute to the employee’s PF balance in the following ways:

  • The employer may provide only on the ceiling wage from both the employee’s salary and from the organisation
  • The employer can limit the organisation’s contribution to the ceiling wage but continues to contribute to the PF balance of the employee according to their salary amount
  • The employer may add to the PF balance according to the employee’s salary from both the employee’s salary and the organisation

Example of Interest Rate Calculation of EPF Balance

 

Given below is an illustration of interest rate calculation of the EPF balance to give you a better idea of the calculation:

Your Salary + Dearness Allowance = Rs 30000

Interest Rate = 8.65%

Employee’s EPF Contribution = 12% of Rs 30000 = Rs 3600

Employer’s EPF Contribution = 3.67% of Rs 30000 = Rs 1101

Employer’s EPS Contribution = 8.33% of Rs 30000 = Rs 2499

Employer’s EPS Contribution on Wage Ceiling = 8.33% of Rs 15000 = Rs 1249.5

Employer’s EPS Contribution above the Wage Ceiling = Rs 2499 – 1249.5 = Rs 1249.5

Employer’s EPS Contribution above the Wage Ceiling is added to the EPF of the Employee.

Therefore,

Total Employer’s EPF Contribution = Rs 1249.5+1101 = Rs 2350.5

Total EPF Contribution = Employer’s EPF Contribution + Employee’s EPF Contribution = Rs 2350.5+3600= Rs 5950.5

This contribution is rounded off to Rs 5951.

This can be used as an example to calculate & Check PF balance. It is important to know how your employer contributing to your EPF balance before you calculate your interests on the same.