The full form of (EPF) is Employment Provident Fund. It is maintained by the (EPFO) Employment Provident Fund Organization to provide retirement benefits schemes to the employees. When the employees and the employers together contribute to the EPF scheme in equal proportion of 12% on the monthly basis from the dearness allowance and the basic salary in which, 8.33% that is out of the employer’s contribution is directed towards the Employees Pension Scheme. This savings scheme works for the salaried-class people to facilitate a habit of saving their money by building a substantial retirement corpus. The pre-fixed rate of interest has been set in Provident Fund by the (EPFO). The tax-free accrued interest in the EPF schemes can be withdrawn in lump-sum amounts by the employees at the time of their retirement without paying for the same.
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EPF Interest Rate
In India, the salaried-class people Employees Provident Fund is a highly and most widely used investment scheme for the long-term which is launched under the supervision of the Government of India. the EPF Act was enacted in 1952 and managed by the Employees Provident Fund (EPFO).
However, the Central Broad of Trustees of (EPFO), review the interest rate every year after making consultation with the Ministry of Finance. The EPF interest rate review has been set for every financial year. For the financial year 2020-21, the EPF interest rate after a cut of 0.15% from 2018-2019 has been set at 8.50%.
How to calculate EPF Interest Rate?
Under the Employees Provident Fund and Miscellaneous Act, 1952, EPF is a retirement benefits scheme where an employee and the employer contribute equally on the monthly basis. The EPF of each month is calculated and deposited in the account at the end of every financial year. The calculation of the EPF interest rate is explained further in the given example.
- Basic Salary + Dearness Allowance = Rs. 30,000
- Employee’s contribution towards EPF = 12% of Rs. 30,000 = Rs. 3,600
- Employer’s contribution towards EPS = (subject to the limit of Rs. 1,250) = Rs. 1,250
- Employer’s contribution towards EPF = (Rs. 1,250 – Rs. 3,600) = Rs. 2,350
- Hence, the total contribution of the EPF every month = (Rs. 3,600 – Rs. 2,350) = Rs. 5,950.
The rate of interest of EPF for the financial year of 2019-2020 is 8.50% that is the interest applicable per month. However, EPF will be calculated at the end of every month. So, the interest rate will only be credited at the end of every financial year. Hence, calculating the interest rate of EPF is = 8.50/12 = 0.007083%.
Let’s suppose that an employee joined his/her new service on 1 July 2020 and the contribution starts for the financial year 2020-21 is from July 2020 only.
Therefore, the total contribution for July = Rs.5,950
EPF contribution for the interest rate of July = NIL (No interest is paid for the first month).
EPF account balance at the end of July = Rs. 5950
EPF contribution of August = Rs. 5950
Therefore, Total EPF account balance at the end of July = 11,900
Interest contribution on the EPF for August = Rs. 11,900 * 0.007083% = Rs. 84.29.
Frequently Asked Questions
Q1. What is an EPF Form?
Ans. EPF form plays a vital role in the process of any activity in the EPF account of an EPF employee member. An EPF form is mandatory for completing many activities such as registration, withdrawal or availing loans, PF transfer, etc.
Q2. What are the steps to be taken in EPF withdrawal?
Ans. There are two choices in the withdrawal of the EPF. It can be partially or completely withdrawn by the individual. The EPF partial withdrawal is allowed under some circumstances whereas, complete withdrawal is allowed when an employee remains unemployed for two months or when he/she got retired. An employee can claim its withdrawal by filling the EPF withdrawal form online. However, a person can claim his/her EPF withdrawal facility only if his/her Aadhaar is interlinked with the UAN.
The following steps are to be taken in EPF withdrawal that is listed below.
- An individual first signs the UAN Member Portal with his/her UAN and password.
- After that, from the top of the Menu bar, he/she must click on the ‘Online Service’ tab and right afterward select “Claim(Form-31,19 and 10C)” from the drop-down menu.
- There, member details will be displayed on the screen, and then enter the last four digits of the bank account. After that, he/she must click on the “Verify” option.
- To proceed further, click on ‘Yes’ to sign the certificate of the undertaking.
- Now, the applicant must click on the option of “Proceed for the online claim”.
- Then, to withdraw the funds online, the applicant must select “PF Advance (Form 31)”.
- Then a fresh section of the online form will open where the applicant must have to select the option of “Purpose of which the advance is required” and the amount required with the address of the employee.
- Now, the applicant must tick on the certification and apply thereafter.
- Then, the applicant may also have to submit the scanned documents that depend on the purpose for which he/she has filled the form.
- At last, the applicant must have to approve his/her withdrawal request in which the money will be withdrawn from his/her EPF account and also gets deposited in the bank account mentioned in the withdrawal form.
Once the claim is processed, the SMS notification will be sent on the registered mobile number with EPFO. And the amount will be transferred to the bank account of the applicant. Although, EPFO has not provided any formal time limits. However, the money will be usually get credited within 15-20 working days.
Q3. Is the interest rate of the EPF taxable?
Ans. The EPF balance rate is exempted from the tax payments till the date of retirement. But, after retirement, the interest credited will stand taxable as an income from other sources.
Q4. State one main difference between the interest rate of EPF and PPF.
Ans. The interest rate of PPF for the financial year 2020-21 is 2.1% whereas, the interest rate of EPF for the financial year 2020 is 8.50%.
Q5. When is the EPF interest credited to the employee’s account?
Ans. According to the EPF Act specification of 1952, as per the monthly running balances that effects the last date of every financial year, the interest is thus credited to the member’s account.