Quick guide on EPF: EPF interest rate, facts, eligibility, and contribution

EPF refers to the retirement benefits scheme, which is maintained by the EPFO (Employees Provident Organization). Employer and employee contribution towards the EPF scheme monthly is 12% in equal proportion of the dearness allowance and basic salary. From the employer’s contribution, a percentage of 8.33 percent is directed towards the EPS (Employee Pension Scheme).

Check out all you should be knowing about the EPF scheme, eligibility, rate of interest, contribution, and others: 

Before that, some facts. With effect from 1st June 2021, it is compulsory to get your Aadhaar linked with an EPF account. If not done, the employer’s contributions will fail to be credited to your EPF account. 

EPF rate of interest financial year

EPF interest rate is annually reviewed. EPF rate of interest for the FY 2021-22 equals 8.5%. Once the EPF notifies the rate of interest for the financial year and year ends, the rate of interest is calculated for the month-wise closing balance and, after this, the whole year. 

The year where the new rate of interest is announced remains valid for the upcoming financial year, i.e., from the year beginning on 1st April of 1 year to the year ending on the 31st March of the upcoming year. Here are some of the pivotal facts you must know about your EPF rate of interest: 

       Interest rate, i.e., 8.5%, is applicable just on EPF deposits made from the months of April 2021 to March 2022. 

       Rate of interest, even while calculated on a month-on-month basis, is transferred to the EPF account just on a yearly basis on the 31st March of the applicable financial year. 

       Transferred interest gets summed up with the upcoming month, i.e., April’s balance and then again is used for the interest calculation. 

       In case the contribution is not made in the EPF account for 36 months on a continuous basis, accounts will get inoperative or dormant. 

       Interest gets offered on the inoperative account of the employees who did not attain the retirement age. 

       Interest is not offered on the amount deposited in the inoperative account of the retired employees. 

       Interest earned on the inoperative account gets taxed according to the member’s slab rate. 

       For the contribution made to the EPS by the employer, the employee shall not get the interest. However, the pension gets paid out of the amount after 58 years of age. 

EPF rate of interest calculation

Let us suppose that a staff member begins his contribution from November 2020 month. 

Contribution starting month November 2020
Rate of interest  8.5 percent
Month on month interest rate 8.5/12=0.708%
Employee’s contribution 12 percent of Rs 15,000
Employer’s contribution Rs 1,800 (8.33 percent in pension, 3.67 percent in EPF)
Employer’s actual contribution to EPF account 3.67 percent of Rs 15,000 equal Rs 550
Overall monthly contribution towards EPF account Rs 1800 plus Rs 550 equal Rs 2,350

Balance calculation for the upcoming month, i.e., December, is done in the listed way: 

       Balance carried forward from November 2020=Rs 2,350

       Rate of interest earned for December month 2020= Rs 16.75

       Balance towards the ending of December 2020 equal Rs 2,350 plus Rs 2,350 = Rs 4,700

Note that interest earned in December 2020 is credited towards the end of the financial year on the 31st March 2021. 

Contribution towards EPF

Employee and employer make an equivalent contribution towards the EPF account: 

Contribution by Month on month % contribution
Employer 12 percent
Employee 12 percent or 10 percent
Total 24 percent

Major points regarding the EPF contribution

       12 percent employer’s contribution involves 3.67 percent EPF and 8.33 percent EPS

       10 percent EPF share is applicable for organizations where there are 20 or fewer employees, or organizations are incurring losses more than or equivalent to their net worth (towards the financial year-end)/ organization that are declared sick by Board for the Industrial & Financial Reconstruction. 

       Overall contribution by the employer is spread as 8.33 percent towards EPS & 3.67 percent towards Employees’ Provident Fund. 

       Contribution made by employee/staff goes towards the provident fund of an employee. 

       Besides the above-mentioned contributions, an additional 0.5 percent towards the EDLI must be paid by the employer. 

       Specific administration expenses towards EPF and EDLI standing at 0.01 percent rate and 1.1 percent, respectively, also must be incurred by the employer. It means the employer must contribute an overall 13.61 percent of salary to this scheme. 

Employee’s contribution towards the EPF

In general, the contribution employee rate gets fixed at 12 percent. However, the interest rate gets fixed at 10 percent in the below ways for the organizations: 

       Firms or organizations employing a maximum of nineteen workers

       Industries declared as a sick industry by BIFR

       Businesses suffering from annual loss much more than their net value

       Guar gum, coir, brick, beedi and jute industries

       Organizations that operate under a wage limit of about Rs 6500.

Employer’s contribution to EPF

The minimum contribution amount must be made by the employer is fixed at a 12 percent rate of Rs 15,000 (however, they voluntarily contribute a higher amount). This amount is equivalent to Rs 1800 each month. This means that both employer and employee must contribute Rs 1,800 per month towards EPF. Initially, the amount is set at 12 percent of Rs 6,500, which equals Rs 780 to be efficiently contributed by both the employee and employer. 

       Contribution from both parties get deposited into EPFO (Employee Provident Fund Organization)

       It is a long-term fund investment for the contribution. This assists them to continue with an independent life after their retirement. 

Criteria for EPF eligibility

       Employees are required to be the active members of the scheme to avail the EPF benefit as per this scheme.

       Employees of the organization are eligible for opting for provident funds, pension benefits and insurance benefits from the joining of the organization. 

       Organization employing up to twenty workers is liable for endowing the EPF benefits to workers. 

       The scheme does not meet the requirements of individuals residing in Jammu & Kashmir.

You can check the contributions towards EPF by visiting the EPFO website to check your EPF passbook. Besides this, you can also download the UMANG app to check your EPF passbook