EPF Interest Rate: How is the interest on your PF decided? Know full calculation here

EPF Interest Rate – Interest is calculated on the basis of monthly deposit ie monthly running balance. But, there is credit at the end of the year.

Provident Fund Account (EPF Account) is the best savings fund for the job seekers. The Employees Provident Fund Organization (EPFO) manages the accounts of its crores of shareholders. In these accounts, both the employee and the employee deposit 24 percent of the basic salary and the dearness allowance. Every year, the government decides the interest rate on the amount deposited in this EPF account. The interest that accrues on the deposit is very important. But, do you know how to calculate the EPF Interest Rate in an EPF account? Generally, the account holders believe that interest is paid on the entire money deposited in the provident fund. However, this does not happen. There is no interest calculation on the amount that goes to the pension fund in the PF account.

This is how

the calculation of interest is done on the basis of the money deposited in the EPF account every month, i.e. the monthly running balance, the interest is calculated (EPF Interest Rate). But, it is deposited in the account at the end of the year. According to the rules of EPFO, if any amount is withdrawn from the balance amount on the last date of the current financial year, then it is deducted for 12 months of interest. EPFO always takes the opening and closing balance of the account. This amount is fixed at the beginning and end of a financial year. To estimate this, the monthly running balance is added and multiplied by the rate of interest / 1200.

Withdrawal of the amount also has an effect if any amount is withdrawn during the current financial year, then the amount of interest (EPF Interest Rate) is taken from the beginning of the year to the month immediately before the withdrawal. The closing balance of the year (PF balance) will be its opening balance + contribution-withdrawal (if any) + interest.

Thus,

Basic salary + Dearness Allowance (DA) = ₹ 30,000

Employee contribution EPF = 12% of ₹ 30,000 = ₹ 3,600 Employee contribution

EPS (subject to limit of 1,250) = ₹ 1,250

Employee contribution EPF = (₹ 3,600 – ₹ 1,250) = ₹ 2,350

total monthly EPF contribution = ₹ 3,600 + ₹ 2350 = ₹ 5,950

Contribution to PF as of April 1, 2020

Total EPF Contribution in April = ₹ 5,950

Interest on EPF in April = Nil (no interest in first month)

EPF Account Balance at end of April = ₹ 5,950

EPF Contribution in May = ₹ 5,950

at end of May. In EPF account balance = ₹ 11,900

Calculating interest per month = 8.50% / 12 = 0.007083%

Calculating interest on EPF of May = ₹ 11,900 * 0.007083% = ₹ 84.29

This formula is imposed. The

interest rate for any financial year is notified by the government. Interest calculation is done at the end of the current financial year. By adding the balance amount on the last date of every month of the year, the interest amount is extracted by multiplying the fixed interest rate by 1200 times that amount.