BAJAJ BROKING
March 04, 2025
7 mins read
Employee Provident Fund or EPF is a government-backed welfare scheme that is specially designed for employees working in the organized sector. Introduced in 1952 by EPFO, the scheme helps employees have robust retirement savings that can help them feel more financially stable and independent even after their retirement. The scheme accumulates savings using the contributions made by the employer and the employee according to the basic wage of the employee.
However, to make the most of the scheme, it is important to understand the same in detail including the interest rate on EPF contributions. Here we help you tackle the same topic. Read on as we explore EPF interest rate, popular trends, EPF contributions by both employees and employers, how to calculate PF interest and much more.
The EPF interest rate is reviewed on an annual basis after consulting with the Finance Ministry by the Employee Provident Fund Organisation’s Central Board of Trustees. The EPF interest rate for 2024 was 8.25%. The EPF for 2024-2025 is expected to be decided by Feb 28, 2025. However, it might remain the same even for this year.
Have a quick look at the present and past EPF interest rates.
Financial year | Rate of interest (in %) |
2016-17 | 8.65 |
2017-18 | 8.55 |
2018-19 | 8.65 |
2019-20 | 8.50 |
2020-21 | 8.50 |
2021-22 | 8.10 |
2022-23 | 8.15 |
2023-24 | 8.25 |
As mentioned earlier, the PF rate of interest is annually reviewed. The EPF interest rate for 2024 was fixed at 8.25%. However, it is important to understand that once the interest rate is declared by the EPFO and the year ends, the rate is assessed following the closing balance for each month and then for the whole year.
The newly announced rates of interest remain valid for a financial year, starting from 1st April to 31st March. The EPF interest rate for 2025 is expected to be announced by 28th Feb 2025 and is expected to remain the same without many changes.
Here are certain things you might need to know about EPF interest rates.
The earlier interest rate was fixed at 8.25%.
Though the interest rate is calculated monthly, the credit of the same to your EPF accounts is done on an annual basis on 31st March every year.
In case where there is zero contribution to the EPF accounts for thirty-six months straight, the account automatically becomes inactive or inoperative.
Employees who haven't attained their age of retirement might earn interest on their inoperative accounts.
However, retired employees are not eligible to earn interest.
Interest on format or inactive accounts is taxable as per the income tax slab of the member.
Employees earn no interest on contributions towards EPS.
Before going any further and understanding how to calculate PF interest, it is first important to understand the contribution details of the program. Let's try and understand the employee and employer contributions to the EPF.
First, let's talk about employee contribution. This may range anything between 8%, 10%, or 12%. The 8% of the basic allowance is applicable for women employees, that too, for the first 3 years of their service.
For employers, the employer contribution is 12% to 10% of the basic employee wage. The company might pay a 10% contribution in case the number of its employees is not more than 19, or in case the BIFR has declared the company ill.
Also, not to forget the contribution of the employer is divided towards EPF, EDLI, and EPS. Have a quick look for yourself.
Contribution | Employee Contribution | Employer's Contribution |
EPF | 12% | 12% |
EDLI | Nil | 0.5% |
EPS | Nil | 3.67% |
However, one of the most frequently asked questions is: what about the contributions on the income above the wage limit. In case the salary of an employee goes beyond ₹15,000, the employer may choose to continue contributing using any of these 3 options.
The employer might limit their contribution as per the ₹15,000 wage limit while allowing the employee to pay 12% of their basic wage.
The employer may choose to contribute and align to the contribution of the employee even when the salary is more than ₹15,000.
The employer may choose to restrict the contribution of both the employee and the employer as per the ₹15,000 wage limit.
Now, let's come to the interesting part: how to calculate PF interest. Well, before we start with the same, let's try and understand that you need some information to proceed any further.
Here is the list of information that you must keep in handy to quickly calculate your PF interest using your PF interest calculator.
Employer's age
Total balance in your EPF account
Your age of retirement
Your basic wage for each month
The dearness allowance for each month
EPF contributions (in %) per month
Expected hike in your wage
Once you fill in all the details accurately, you can easily view the expected rate of interest earned at your retirement time. This may prove beneficial in making financial choices, financial planning, and much more.
As mentioned, the EPFO fixes the EPF interest rate on an annual basis. This interest rate is fixed based on the conditions of the market and other factors. Now, several methods can be used to calculate PF interest. You may calculate your PF interest using the step method or formula method.
Now, if you want to calculate your PF interest using the step method then consider using a simple formula: find the product of your closing balance at the month's end and the current PF rate of interest. Now, divide the same by 12 and here you go.
Let's say the interest rate for your EPF is 8.25% and your basic wage is ₹45,000. Now, as an employee, you're supposed to pay 12% of your basic wage, which is 12% of 45,000 = ₹5,400.
Now, assume your employer is paying 12% of your basic wage minus the 8.33% of the wage limit of ₹15,000 which is ₹1249.5. This means the total contribution is ₹5,400 - ₹1250 = ₹4150 when rounded off.
Therefore, the opening balance is ₹5400 + ₹4150 =₹9550.
For the 1st month, the interest is assumed 0 because of no opening balance. For the 2nd month, the interest is estimated as per the opening balance of ₹9550.
Now, assume the yearly annual interest rate of 8.25%. Here, your monthly rate of interest is going to be:
8.25%/12 = 0.68%
This means your monthly interest is going to be 0.68% of ₹9550 = ₹64.94. This may be rounded off to ₹65.
Now, let's take the formula-based approach for PF calculation. Say, your balance is ₹9550. Now, you may calculate your interest using the following formula:
(8.25%/12)×₹9550
= ₹65
This is the closing amount for an annual year and the opening amount for the coming year.
Now, you might wonder what the interest rate on a dormant or inactive account is.? Well, let's first start by understanding dormant accounts. In case your account stays inactive or gets zero contributions for about thirty-six months, it is announced to be inoperative or dormant. This may happen in case an employee misses to transfer their account to the new employer from their previous one.
However, it is important to understand that even these dormant accounts are going to incur interest rates as per the latest rates, according to the updated rules from 2016.
When it comes to withdrawals from your EPF, you first need to understand your eligibility. Remember, you may withdraw the full EPF balance only in case you have reached fifty-eight years of age. Additionally, you might also make withdrawals in case you have been unemployed for an extended period exceeding 60 days. However, you may also withdraw your balance in certain special circumstances. Here is a list of some of them. Consider having a look.
In case you need a certain amount for medical expenses or to pay off a home loan.
In case your unemployment period has exceeded the timeframe of 60 days. Or you simply are planning to move overseas.
Also, in case you're already fifty-seven, you may withdraw around 90% of your balance. Further, withdrawals made after five years are tax-exempted, while withdrawals done before completing five years might be required to pay a certain tax on the same.
Additional Read:
Calculating your PF balance is a simple and effective process. The same helps you keep an eye on your savings and the pattern of their growth. Using the above step-by-step process, you can easily calculate your PF, and be better prepared for your financial planning and retirement savings.
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Here are some rules for withdrawing EPF amounts, including the interest.
You may withdraw the full balance only after your retirement.
You may also make withdrawals in case your unemployment period exceeds 60 days.
You can also make partial withdrawals for medical coverage, house loans, and more.
Yes, you may take advances against your PF balance in special circumstances like higher education, medical emergencies, education, and more. However, you need to comply with the eligibility criteria.
In the case of the Statutory Provident Fund Scheme, the employee contribution to the fund is subject to tax deductions under section 80C of the Income Tax Act. However, the contribution should not exceed the upper limit of ₹1.5 lakhs. The employer’s contribution of up to 12% is tax-exempted.
There is no contribution limit for voluntary PF schemes. Individuals may contribute their total income, including their basic wage and allowance, towards the Voluntary Provident Fund Scheme or VPF scheme.
Yes, an individual continues to earn interest on their PF even after their retirement. This happens for up to three years post your retirement. After three years of inactivity or no contribution, the account becomes inoperative.
Yes, you may withdraw your EPF funds in case you're unemployed. However, it is important to understand that you may withdraw just 75% of your account balance if you've been unemployed for one month. In case of unemployment exceeding 60 days, you can withdraw your full balance.
UAN or Universal Account Number is a 12-digit unique number offered to every employee subscribing to avail of the benefits of the EPF scheme.
Yes, PF interest stops after three years of no contributions or inactivity. Post this period, your account becomes inactive.
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