April 26, 2023

EPF Interest Rate 2023 & How to Calculate it Online

EPF Interest Rate

EPF (Employee Provident Fund) is a savings-retirement scheme devised for salaried employees under the Employees Provident Fund and Miscellaneous Act of 1952.

The management of this provident fund is overseen by the Employees’ Provident Fund Organization or EPFO. In this policy, the employee and the employer contribute monthly. Every monthly installment is added to the EPF corpus till the retirement of an individual, and the interest is accrued at a stipulated rate on these deposits.

Upon retirement, this EPF corpus encompasses the monthly contributions of the employee and the employer, including the interest generated over the years. The fund collected can also be withdrawn in certain situations as decreed by EPFO, like during unemployment. Thus, the scheme of EPF has been designed to act as a financial safety net for when an employee does not get a monthly paycheck.

EPF Interest Rate for FY 2022-2023

The EPF interest rate is traditionally higher than any other PF interest rate. EPFO revises the rate of EPF interest every fiscal year. The EPFO rate for the fiscal year 2022- 2023 has been decided at 8.1%. These EPF rates remain functional from 1st April of one year to 31st March of the next year.

The PF interest rate of 8.1% is valid on EPF deposits made from 1st April 2022 to 31st March 2023.
Calculating the PF interest for EPF happens every month, but it is added to the EPF account annually on 31st March, i.e., the end of a fiscal year.
This interest is then considered a part of the balance of April of the next fiscal year and is used to calculate the PF interest of that month.
It is crucial to note that EPF contributions are mandatory and are deducted from the employee's monthly salary. However, the account is deemed inactive if an EPF account goes without any deposit for 36 months.
Employees who have not retired but remain unemployed for a long time risk having their accounts inactivated. But they might earn interest on the accumulated funds. However, retired employees do not acquire PF interest through their dormant accounts.

Contribution Towards EPF

Two parties simultaneously contribute towards an EPF account- an employee and their employer.

Employee's Contribution

The statutory contribution of an employee towards his EPF account is 12% of his base salary + Dearness Allowance every month.
However, if the organization where the employee works has less than 20 employees or the company belongs to sectors like jute or brick production, or if the company has suffered annual losses more than their net worth, the employee is obligated to contribute at a lower percentage of 10%.

Employer's Contribution

Like the employee, the employer too contributes 12% of the employee's base salary plus DA towards an EPF account.
However, the 12% contribution bifurcation happens between an employee's EPS and EPF accounts. 8.33% of the contribution goes towards the Employee Pension Scheme (EPS). However, this amount is capped at 1250 INR per month for employees with a monthly salary of 15000 INR or more. It is pertinent to mention that employees don't earn any interest on their EPS accounts. However, a pension is generated from this account when a salaried employee turns 58.
3.67%, out of the 12%, goes towards the EPF corpus of the employee.
Employers also pay 0.5% towards an employee's EDLI or Employees' Deposit Linked Insurance account.
If an employer voluntarily opts to pay more than the obligatory 12%, the additional funds are added to the Voluntary Provident Fund or employee's VPF.

Who is Eligible to Open EPF Accounts?

EPF is a retirement savings instrument available for employees. Let us see who is eligible to open their EPF accounts.

People on an organization's payroll as their employees can have EPF accounts.
Employees working in enterprises consisting of 20 workers or more are eligible to register for an EPF account.
EPF is a retirement-savings scheme applicable for Indian residents all over India, except for the provinces of Jammu and Kashmir.

Calculations of EPF Interest

The calculation of EPF interest happens monthly. Let us take the example of Mr. X, who works at ABC Enterprise, to calculate the EPF interest.

Mr X's base salary + DA= 50,000

His contribution towards his EPF (fixed at 12% of base salary plus DA) = 12% of 50,000 = INR 6,000

Employer's contribution towards EPF (fixed at 12% of base salary plus DA) = 12% of 50,000 = INR 6,000

Employer's contribution towards EPS (capped at 1250) = INR 1250

Employer's contribution towards EPF alone= 6000 - 1250= INR 4750

Total contribution towards EPF from Employee and Employer every month= 6000 + 4750= INR 10,750

Now, let us calculate Mr. X's EPF interest assuming he joined the company on 1st April 2022. The interest rate applicable for FY 2022-23 is 8.1%. Since the interest generation will be monthly, the interest rate for a month will be 8.1%/12= 0.675%

There will be no interest generation for the first month of April. The balance deposited in April will be carried over to May 2022, and then the accrual of interest occurs. The interest gets added to the account at the end of every fiscal year.

EPF deposit for April 2022= 10,750

EPF Balance at the end of April 2022= 10750

Interest Earned= 0

EPF deposit for May 2022= 10,750

EPF Balance at the end of May 2022= 10750 + 10750= 21500

Interest earned for May= 0.675% of 21,500= 145.125.

How to Register for a Fresh EPF Account?

Here is a detailed breakdown of an EPF account creation process.

Visit the official website of the Employees' Provident Fund Organization.
Click on the 'Establishment Registration' tab and sign up for your profile. It will redirect you to an instruction manual guiding you through the process. You will have to submit the digital signature certificate of the employer to move forward.
This is followed by checking in the 'I have read the instruction manual' box and then filling in your details.
Once you have completed this part of registration, you will receive a PIN on the registered mobile number and an activation link via email.
Once you have activated your profile through the link, you must upload some documents to complete the registration.
After your EPF profile's successful creation, you will receive a unique 12-digit Universal Account Number (UAN). This number is crucial for the future management of the EPF account.
A registered EPF member can log in to his account anytime using his UAN to check his balance or transfer funds.

Nomination Facility for EPF Accounts

EPFO has made it mandatory for EPF members to enlist a nominee for their accounts. The provision facilitates to ensure that the dependents and family members of an employee can access the savings of the person accumulated during his employment in case of the unfortunate incident of his untimely demise.

Nomination details can be updated both online and offline. The last date for filing an e-nomination was 31st December 2021, but the deadline was subject to an extension to encourage more members to update their nominee details.

To file an e-nomination for an EPF account, an employee must submit the following information about the nominee, like an Aadhaar number, name, date of birth, gender, relationship, address, bank details, and photographs. To complete the nomination process, one needs a digital signature.

Taxability of EPF Accounts

Until 2020, EPF deposits and the interest earned were completely exempt from taxation. However, the Ministry of Finance has revised the tax benefits of EPF members, effective from the fiscal year 2022. The statute decrees that if the annual deposits in EPF and VPF exceed the annual threshold of 2.5 lakh INR, the interest earned on contributions beyond the limit will be taxable.

If the employer does not contribute to the EPF account, the interest earned on deposits of up to 5 lakh INR in a year will be exempt from taxation. To avoid confusion, the Central Board of Direct Taxes recommended two PF accounts for an employee: one for non-taxable deposits and the other for taxable deposits from the year 2021. Thus, EPF contributions above 2.5 lakh are deposited in the taxable account. The interest earned in this account will be subject to taxation. It has been in effect since 1st April 2022.

Withdrawal of Funds from EPF Account

Individuals can draw the entire EPF corpus, including deposits and accrued interest, from their EPF account upon retirement.
Premature withdrawal of funds from the EPF account is permissible under specified circumstances as decreed by the EPFO.
A person out of a job for more than a month can draw out 75% of the total EPF corpus.
If the period of unemployment extends beyond two months, an individual can apply to withdraw the entire EPF corpus.

Benefits of an EPF Account

Financial Cushion for Post-retirement- This is long-term savings account for retired employees. The lump sum amount that employees can withdraw from these accounts after retirement allows them to live an independent life even when they have no source of income.
Safety for Unemployment- Unemployed people can withdraw funds from their EPF corpus to manage expenses. An employee is entitled to 75% of their EPF corpus after one month of unemployment, and he can access the remaining 25% after the second month of employment. It ensures that salaried employees have some breathing space to find jobs without worrying about day-to-day expenses.
Positive Financial Practice- Contributions to EPF accounts are not voluntary. It is a mandatory saving scheme where the deposit from the employee's salary deducts automatically. It instills a positive attitude towards saving, and the deposits contribute extensively to the ultimate financial goals of an individual. EPF is an opportunity for long-term saving plans since withdrawing funds from the account is not on one's whim.
Rainy Day Fund - Although one is not entitled to withdraw funds from their EPF account, an employee can apply for early withdrawal under extraordinary circumstances. For instance, if an employee suffers a physical injury during his employment and is no longer fit for any work, he can withdraw the funds to cover his expenses.
Lay-off- Unfortunately, employees get laid off left and right during tumultuous economic situations like recession or when a company suffers severe financial losses. In these testing times, an employee is free to use funds from his EPF to get by until he finds another job.
Employee's Demise- In the event of his untimely death, EPF funds are transferred to the nominee of an employee. Deaths are emotionally and physically draining. Additionally, it can be financially stressful too. These funds financially help the deceased's family to get through such difficult times.
EPS Benefits- Employee Pension Scheme is a subcategory of EPF. Employers contribute 8.33% of the base salary plus the DA of an employee to EPS. Accumulation of these funds through the period of an individual's employment tenure creates a retirement fund. Upon his retirement, he can use these funds in the absence of his monthly paychecks.
UAN- Provision of a unique UAN number to employees takes place. An employee can carry on with the benefits of his EPF by linking the EPF portal of his new workplace with his existing account through the UAN, irrespective of the many times the employee changes jobs.

Limitations of EPF

EPF savings facility is only available to organizations registered under the EPF Act. It includes companies with 20 or more employees. This entails employees of small businesses and organizations, self-employed people, or retired employees who cannot reap the benefits of an EPF account.
The EPF account has a limitation on contributions. Employees cannot adjust their contributions depending on their other expenses.
Withdrawals from the EPF funds before the account completes five years from the date of opening are subject to taxation. It is one of the disadvantages of EPF since an employee might use the funds accumulated in his EPF account due to uncertain circumstances.
If a salaried employee decides to move into a self-venture or moves to a start-up with less than 20 employees, he will no longer be able to continue his contributions to his EPF account. Thus, his EPF account will eventually become dormant, and he will be deprived of the benefits of this savings instrument.

EPF vs PPF

Although both savings schemes are provident funds, they have some poignant differences. Here is a tabular representation enumerating the differences between a PPF and EPF.

Feature	EPF	PPF
Nature of Scheme	Retirement Scheme	Savings Scheme
Eligibility	A salaried employee working in an organization with more than 20 employees.	Every Indian Citizen except NRIs
Maturity	Upon retirement	15 years from opening the account
Investment Amount	12% of base salary + DA	Minimum limit: 500 bucks per annum Maximum limit: 1.5 lakh per annum
Early Withdrawal	After two months of employment for statutory cases like buying a house, a medical emergency, or repaying a loan	Only after completing 7th year of the policy

FAQs

How is UAN linked with EPF?

UAN is a unique 12-digit number assigned to each EPF member. An employee can manage his EPF account through this unique number. When a person changes jobs, he has to submit his new UAN number so that the EPF account from his previous tenure of employment continues at this new workplace. So, no matter how often an employee switches jobs, the EPF account of his initial job will be carried over.

Is linking Aadhaar with the EPF mandatory?

UIDAI has instructed that EPFO shall verify employee credentials through their Aadhaar card for EPF schemes. Thus, for availing of online EPF services, linking Aadhaar with UAN seems the logical option.

For offline EPF services, using Aadhaar KYC, officials link the Aadhaar details to the EPF account to initiate online EPF services.

Can I apply for advances against my EPF balance?

Yes, you can apply for advances against the fund accumulated in your EPF fund. You do not have to repay this advance since the fund you withdraw is not a loan but a portion of your savings.

Of course, a person cannot apply for advances from EPF according to his desire but must have some binding cause, like buying a house or an education loan for children. EPF has been designed to cater to the post-retirement financial necessities of salaried employees. Hence, keeping the fund intact for as long as possible is best.