EPF Interest Rate

Introduction

The Employees’ Provident Fund Scheme is a trusted tax-free investment solution designed to expand the savings of the salaried class. Under the EPF scheme, the employee and the employer make pre-determined monetary contributions monthly in favour of the former. Moreover, the employees get a fair chance to pool this money out at the time of their retirement, job switch, or discontinuation of work, either permanently or temporarily, due to physical disability. 

Launched by India's Employees Provident Fund Organisation (EPFO), the scheme helps establish a regulated savings structure for salaried employees. The scheme works under the Employees' Provident Funds and Miscellaneous Act 1952. It covers all organisations having twenty or more employees. However, some exceptions compel certain entities to follow the EPF guidelines even at the non-fulfilment of 20 employees criterion. 

The contributions made by the employer and employee towards the fund and the EPF interest rate do not attract any tax liability at the withdrawal time. The feature makes the EPF scheme a viable retirement plan for employees. 
 

Current and Historical EPF Interest Rates

The EPFO Central Board of Trustees releases a new EPF interest rate every year after consultation and discussion with the Finance Ministry of India. The organisation analyses the prevailing market conditions to ascertain the provident fund interest rate. For the financial year 2022-2023, the PF interest rate is fixed at 8.1%. 

The EPF interest imposed on the EPF account for the past five years is in the table below.

EPF Interest Rates 2022 – 2023

EPFO’s Board of Trustees and the Ministry of Finance calculate the interest rate on EPF savings every year. The interest rate for the current year heavily depends upon the revenue flow made through contributions to the EPF during the previous year. At the year-end, the officials calculate the EPF interest rate on the monthly closing balance before calculating it for the whole year. 

The interest rates fixed for a year remain valid for twelve months. For instance, the fixed interest rate for the current fiscal year will apply to deposits made between April 2022 and March 2023. Here are some of the critical pointers related to PF interest rate 2022-23.

●    The interest rate decided by EPFO and Finance Ministry for 2022-23 is 8.10%. It applies to all deposits made between April 2022 to March 2023. 
●    The interest collected on the deposits is calculated every month. This amount is transferred to the EPF account only once a year, i.e., on 31st March. 
●    The deposited interest is added to the next month's balance, i.e., in the EPF interest balance of April.
●    An EPF account becomes dormant if there are no contributions for 36 months in a stretch. 
●    You can earn interest on your dormant EPF account if you are not close to your retirement age. 
●    You do not get any interest against the amount put in the dormant accounts of retired employees. 
●    The interest pooled in dormant accounts is taxed as per the Income Tax regulations.
●    You do not earn interest for payments made by the employer to the Employees’ Pension Scheme. After completing 58 years of age, you can get a pension from the scheme. 
 

EPF Contribution by Employee and Employer

An EPF account involves contributions from the employer and the employee. Employees' contribution amount is 12% of their basic salary clubbed and dearness allowance (DA). The employer also contributes a similar amount of 12% of salary and DA to the EPF scheme. Out of this 12% share from the employer

●    8.33% goes to the Employee Pension Scheme. The amount has a ceiling of INR 1,250 per month if the employee’s salary is INR 15,000 or more. 
●    The remaining 3.67% goes to the employee’s EPF account. 
●    The employer also contributes 0.50% in favour of the Employees’ Deposit Linked Insurance scheme. 

The EPF contribution percentage can vary from 12% to 10% in the case of the following employers:
●    Entities with less than 20 employees.
●    Board for Industrial and Financial Reconstruction identified sick industrial business units.
●    Any business with accumulated total losses equal to or greater than its net value.
●    Any employer in the given industries:
○    Jute
○    Brick
○    Coir
○    Beedi
○    Guar gum factories

Provident Fund contributions become due on the 15th of every month. For both the employee and the employer, the contributions are payable on the statutory salary ceiling of INR 15,000. However, an employee can pay more than the statutory limit of 12% via the Voluntary Provident Fund scheme. In that instance, the employer is not bound to match that higher rate.
 

How to Calculate PF Interest

You can quickly ascertain your EPF interest through the simple calculations listed here. 

Suppose you joined the service on 1 April 2022. So, your contributions for this fiscal year will start in April 2022 and end on March 2023. The current EPF interest rate fixed by EPFO is 8.10% p.a. The monthly interest rate comes out to be 0.675%. 

Tax Benefits on EPF contributions

●    The interest accrued on EPF contributions beyond INR 2.5 lakh per year is taxable. 
●    When an employer does not contribute to an employee's EPF account, this contribution ceiling is raised to INR 5 lakh.
●    Only the excess contribution that crosses the threshold limit attracts tax liability. A separate EPFO account stores the excess contribution and its related interest.
●    The employer's contributions to Provident Fund (PF), National Pension Scheme (NPS), and superannuation are exempt from tax if the combined amount is up to INR 7.5 lakh per year.
●    Since employers will hold taxes based on accruals, they should provide the necessary details in Form 16 and Form 12BA. The taxes withheld will appear under the head ‘Income From Other Sources’ during tax filing by employees.