While the EPF contribution is deposited every month, the interest is calculated at the end of the year.
The Employees’ Provident Fund Organization (EPFO) held the interest rate for the 2020-21 fiscal year unchanged from the previous year at 8.5 percent on Thursday, March 4th.
While an employee pays 12 percent of the basic salary and the love allowance to the pension fund for employees (EPF), the employer contributes 8.33 percent to the old-age provision (EPS) and 3.67 percent to the employee’s EPF. This is how the interest rate on EPF is calculated:
While the EPF contribution is deposited every month, the interest is calculated at the end of the year. EPFO calculates the monthly closing balance each month and then calculates the interest. Interest is calculated by multiplying the monthly balance by the interest rate. Since the interest rate is 8.50 percent per year, it is divided by 12 to calculate the monthly interest (8.5 / 12 equals 0.7083).
Also read: HRA, LTA, EPF, NPS: Know your salary structure to save taxes
So if the running balance at the end of a month is Rs 5,000, the interest is 5,000 * 0.007083. Interest is calculated in the same way at the end of each month.
On Thursday, EPFO’s central board of trustees, which met in Srinagar, ratified the 8.5 percent interest rate after assessing the company’s earnings and financial position. The meeting was chaired by Labor and Employment Minister Santosh Kumar Gangwar.
While the 8.5 percent interest payout is the same as last fiscal year, it will be cheering 60 million (6 crore) subscribers, and anything below that interest rate could have been the lowest in a decade. The EPF interest rate was 8.65 percent in fiscal year 19.
Also Read: EPF Interest Rates: EPFO Keeps 8.5% for 2020-21