PF interest rate
An overview of the PF interest rate
In this post, we’ll review the latest PF interest rate and how it has changed over the years. We will also discuss the detailed procedure for calculating the PF interest rate.
We will cover the following topics:
EPF Interest Rate
EPF is a retirement benefits system created by the Employees Provident Fund and Miscellaneous Act of 1952. In it, an employee contributes to the scheme, and the employer makes an equal monthly contribution.
The Employee Provident Fund Organization (EPFO) oversees the scheme.
Upon retirement, employees receive a lump sum payment that comprises their contributions, their employer’s contributions, and interest on both. Under certain conditions, withdrawals within the service period are also permitted.
When the capital and interest are withdrawn, both are tax-free, making this a popular retirement plan for paid individuals.
The plan applies to all businesses with 20 or more employees. Certain limitations and exceptions may apply to organisations with less than 20 employees.
EPF Interest Rates 2023-24
The Employees’ Provident Fund Organisation (EPFO) reviews the EPF interest rate annually. For the financial year 2023-24, they set it at 8.15%. After the EPFO announces the rate and the financial year closes, they calculate the interest monthly for the entire year on your contributions.
The announced interest rate is valid for the financial year beginning April 1 and ending March 31 of the following year.
Key Points about EPF Interest Rate:
- The interest rate on EPF deposits is 8.15%.
- Interest is calculated monthly but deposited annually on March 31.
- The deposited interest is added to April’s balance and used to calculate the following year’s interest.
- It becomes inactive if no contributions are made to an EPF account for 36 months.
- Employees under retirement age continue to earn interest on their inactive accounts.
- Retired employees’ inactive accounts do not receive interest.
- The tax authorities tax interest on dormant accounts at the member’s tax rate.
- The Employees’ Pension Scheme does not offer interest on employee contributions. However, it provides a pension upon reaching the age of 58.
EPF Contribution Rate
- Employee EPF contribution is 12% of salary.
- Employer EPF contribution is 3.67% of salary.
- The employer EPS contribution is 8.33% of salary up to Rs. 15,000 (a maximum of Rs. 1,250).
Details Required to Calculate EPF Interest Rate
The following information is required to calculate EPF interest:
- The employee’s current age
- The current balance of the EPF.
- The monthly basic and dearness allowance is limited to Rs.15,000.
- The percentage of contributions to the EPF.
Retirement age.
Calculation of PF Interest Rate
The employee contributes 12% of their basic salary + dearness allowance to EPF. The employer also contributes 12%, split as follows: 8.33% goes to the EPS account (up to a maximum of Rs 1,250 per month), and the rest goes to the EPF account.
For example, if an employee’s basic salary + dearness allowance is Rs. 50,000:
- Employee contribution to EPF (12% of Rs. 50,000): Rs. 6,000.
- Employer contribution to EPS (8.33% of Rs. 15,000): Rs. 1,250.
- Employer contribution to EPF (Rs. 6,000 – Rs. 1,250): Rs. 4,750.
- Total monthly EPF contribution: Rs. 10,750.
A, For the first month:
- EPF contribution: Rs. 10,750.
- Interest rate: 8.25% annually (0.688% monthly).
- Interest on first month: Nil.
- EPF balance at the end of the first month: Rs. 10,750.
B, For the second month:
- EPF contribution: Rs. 10,750.
- Total amount: Rs. 21,500.
- Interest accrued: Rs. 21,500 * 0.688% = Rs. 147.92.
- EPF balance at the end of the second month: Rs. 21,500.
C, For the third month:
- EPF contribution: Rs. 10,750.
- Total amount: Rs. 32,250.
- Interest accrued: Rs. 32,250 * 0.688% = Rs. 221.88.
- EPF balance at the end of the third month: Rs. 32,250.
This calculation continues similarly for each month of the year.
Change In PF Interest rates over years
The PF rate changes every year. The graph below shows the history of the EPF rate over the past decade.
FAQs
1. Will an individual receive interest on PF after retirement?
Ans: You will receive EPF interest for a maximum of three years after retirement. The EPF account goes inactive after three years of no contributions, and you will not earn any interest.
2. Can I withdraw my EPF money while unemployed?
Ans: You can withdraw EPF funds if you have been unemployed for over two months.
3. What are the Income tax exemptions on EPF?
Ans: Contributions, accumulated interest, and withdrawals are subject to income tax. Contributions of up to Rs. 1,50,000 are allowed for deduction under Section 80C of the Income Tax Act.
4. What is a Universal Account Number (UAN)?
Ans: The Employees’ Provident Fund Organisation (EPFO) assigns a Universal Account Number (UAN) to each member to help them manage their provident fund accounts more efficiently.
