The Provident Fund (PF) is a key financial benefit that employees in India’s organized sector receive when they retire. It is a retirement savings scheme managed by the Employees Provident Fund Organisation (EPFO). Both the employer and the employee contribute a portion of the employee’s salary towards this fund to help them build savings for their retirement.
The Employee Provident Fund (EPF) was introduced under the Employees Provident Fund & Miscellaneous Provisions Act of 1952. This scheme applies to individuals who are working in companies or organizations. Under this scheme, a part of the employee’s salary is deducted by the employer every month and deposited into the employee’s EPF account. In addition to this, the employer also contributes to the same EPF account.
When employees retire, they receive the total amount saved in their EPF account. This amount includes the employee’s contributions, the employer’s contributions, and the interest earned on these contributions over the years. The government sets the interest rate for EPF accounts and reviews it regularly. For the financial year 2023-24, the interest rate on EPF accounts is 8.25%.
What is the current EPF Interest Rate?
The current EPF interest rate for the financial year 2023-24 is set at 8.25%. This interest rate applies to all EPF contributions made between 1st April 2023 and 31st March 2024. For 2024-2025, the interest rate will be announced in a few months.
While the interest on the EPF contributions is calculated every month, it is credited to the EPF account only at the end of the financial year, on 31st March. For instance, for the financial year 2023-24, the interest will be credited by the end of March 2024.
The monthly interest calculation is based on the annual rate of 8.25%. To calculate the interest for each month, the annual interest rate is divided by 12. Furthermore, it gives a monthly interest rate of 0.688% (i.e., 8.25% ÷ 12). Each month’s interest is calculated using this percentage, but the total interest for the entire year is only credited to the EPF account at the end of the financial year.
How To Calculate EPF Amount?
Let’s take the example of Mr. Raj Malhotra, a resident of New Delhi who works in a logistics company and earns a basic salary of Rs. 20,000 per month. We will use this scenario to understand how the Employee Provident Fund (EPF) works and how the contributions are divided between Mr. Raj and his employer.
EPF Contribution Breakdown
In the EPF system, both the employee and the employer contribute a portion of the employee’s salary towards the provident fund. Let’s break down how much Mr. Raj and his employer contribute:
Employee’s Contribution: 12% of the basic salary.
Employer’s Contribution:
- 3.67% of the basic salary goes directly towards the EPF.
- 8.33% of the basic salary goes towards the Employee Pension Scheme (EPS) but is limited to Rs. 1,250.
So, the 8.33% of 20000 will be Rs. 1666.
Since the maximum contribution to the Employee Pension Scheme is capped at Rs. 1,250, we’ll subtract Rs. 1666 from Rs. 1250, and the remaining amount will be Rs. 416.
Note: This amount of Rs. 416 will be added to the Employer’s Contribution to EPF (3.67%).
Mr. Raj’s Basic Salary: Rs. 20,000
Employee’s Contribution to EPF:
Mr Raj contributes 12% of his basic salary towards EPF.
Employee’s Contribution=12%×20,000=Rs.2,400
So, Rs. 2,400 is deducted from Mr Raj’s salary every month and goes into his EPF account.
Employer’s Contribution:
The employer contributes 12% of the basic salary, but this is divided between the EPF and EPS. Here’s how:
Employer’s Contribution to EPS: The maximum contribution towards the Employee Pension Scheme is capped at Rs. 1,250.
Employer’s Contribution to EPS=Rs.1,250
Employer’s Contribution to EPF: The remaining 12% of the employer’s contribution goes towards the EPF, which is 3.67% of the basic salary.
Employer’s Contribution to EPF=3.67%×20,000=Rs.734 + Rs. 416= Rs. 1150
Total Monthly Contribution:
Now, let’s calculate the total monthly contribution to Mr. Raj’s EPF account by combining the employee and employer contributions.
- Employee’s EPF Contribution: Rs. 2,400
- Employer’s Contribution to EPF: Rs. 1150
- Employer’s Contribution to EPS: Rs. 1,250
So, the total contribution towards Mr Raj’s EPF and EPS every month is:
Total Contribution=Rs.2,400 (Employee)+Rs.734 (Employer to EPF) +Rs.1,250 (Employer to EPS) =Rs.4,800
Interest Calculation:
The interest rate for FY 2024-25 is 8.25% annually. This translates to 0.6875% per month (8.25%/12).
The total EPF contribution for the first month (April) is Rs. 4,800. The EPF scheme will not pay any interest for the first month.
The total accumulated balance will start earning interest in the second month (May). Let’s start with April to make you understand the calculation in a better way.
April:
Contribution to EPF (Employee + Employer) = Rs. 2,400 + Rs. 1,150 = Rs. 3,550
No interest for April.
May:
Contribution for May = Rs. 3,550
Total Balance = April Balance + May Contribution = Rs. 3,550 + Rs. 3,550 = Rs. 7,100
Interest for May: Interest=7,100×0.6875%=Rs. 48.81
June:
Contribution for June = Rs. 3,550
Total Balance = May Balance + June Contribution = Rs. 7,100 + Rs. 3,550 = Rs. 10,650
Interest for June: Interest=10,650×0.6875%=Rs. 73.22
July:
Contribution for July = Rs. 3,550
Total Balance= June Balance + July Contribution = Rs. 10,650 + Rs. 3,550 = Rs. 14,200
Interest for July: Interest=14,200×0.6875%=Rs. 97.76
Previous Years PF Interest Rates
Here is a list of the interest rates on PF for the past years.
| Financial Year | Rate of Interest P.A |
| 2023-2024 | 8.25% |
| 2022-2023 | 8.15% |
| 2021-2022 | 8.10% |
| 2020-2021 | 8.50% |
| 2019-2020 to 2020-2021 | 8.50% |
What is the taxation on EPF Interest?
The taxation on EPF interest depends on the amount of the employee’s annual contribution. If an employee contributes more than Rs. 2.5 lakh to their EPF account in a financial year, the interest earned on the amount above Rs. 2.5 lakh becomes taxable. The tax will be deducted at source (TDS) on this interest. However, the interest earned on contributions up to Rs. 2.5 lakh remains tax-free.
For dormant EPF accounts (those inactive for a long period), the interest earned is also taxable for the account holder. Employees can claim tax deductions of up to Rs. 1.5 lakh on EPF contributions under Section 80C of the Indian Income Tax Act, 1961. Additionally, if an employee withdraws EPF funds after 5 years of continuous service, there will be no tax on the withdrawal.
Frequently Asked Questions
Listed below are the frequently asked questions related to the PF Interest rate.
EPF interest is calculated monthly using compound interest at the rate set by the government each year. For 2023-24, the interest rate is 8.25%.
Yes, even if there are no new contributions to your EPF account, you will continue to earn interest for up to 3 years. This applies even if you’re unemployed or have become a Non-Resident Indian (NRI).
You will earn EPF interest for up to 3 years after you retire. After 3 years of no contributions, your EPF account becomes inactive and will no longer earn interest.
No, you won’t lose any money if there’s a delay in updating your passbook with the EPF interest. The interest will be calculated and added at the end of the year, so the delay in updating your passbook won’t affect your earnings.
Yes, if you have been unemployed for at least 2 months, you are eligible to withdraw 100% of your EPF balance.
