EPF Calculator: The road to becoming a millionaire is easy. If you are employed and looking for a scheme to become a millionaire, then your EPF account can benefit crores. But, for this, regular investment and interest calculations have to be done. Let’s understand how…
EPF Calculator: Provident Fund Account is a retirement savings plan for people working in the private sector. The EPF account accounts for 24 per cent (12+12) of both the employee and the employer, including Basic Salary and Dearness Allowance. Every year the government pays interest on the amount deposited in the EPF account. It is reviewed by the Central Board of EPFO on an annual basis. At present, the interest of 8.1 percent is being available on the EPF deposit amount. If you do not withdraw till retirement, then no one can stop you from building a large corpus. Also, the magic of compounding interest is such that you can become a millionaire by investing till the age of 58. Understand how…
Double benefit on interest
Generally, account holders assume that interest is earned on the entire money deposited in the Provident Fund. But, it doesn’t happen. The amount that goes to the pension fund in the EPF account does not get any interest. In the salary slip of every month, you can see how much is your basic salary and DA. 12 percent of the Basic Salary + DA of every employee goes to the EPF account. The company also contributes 12 percent of the basic salary + DA. Interest is earned on the money collected by combining both the funds. But, the advantage of this is that due to compounding interest, the interest also becomes double. That means interest is available on interest.
Rs 1.65 crore will be available on 10,000 basic
EPF Member Age 25 Years
Retirement Age 58 Years
Basic Salary Rs 10,000
Interest Rate 8.1%
Salary Increase 10% (Annual)
Total Fund Rs 1.65 Crore
Retirement Fund at 15,000 Basic Salary
EPF Member Age 25 Years
Retirement Age 58 Years
Basic Salary Rs 15000
Interest Rate 8.1%
Salary Increase 10% (Annual)
Total Fund Rs 2.59 Crore
Calculation of Interest on EPF
Interest is calculated on the money deposited in the EPF account every month (Monthly Running Balance). But, it is deposited at the end of the year. According to the rules of EPFO, if any amount is withdrawn in a year from the balance amount on the last date of the current financial year, then it is deducted 12 months interest. EPFO always takes the opening and closing balance of the account. To calculate this, the monthly running balance is added and multiplied by the rate of interest / 1200.
Withdrawal causes loss in interest
If any amount is withdrawn during the current financial year, then the EPF interest calculation is taken from the beginning of the year to the month immediately preceding the withdrawal. The year’s closing balance (PF Balance) will be its opening balance + contribution-withdrawal (if any) + interest.
Think of it as
Basic Salary + Dearness Allowance (DA) = ₹30,000
Employee Contribution EPF = 12% of ₹30,000 = ₹3,600
Employer Contribution EPS (subject to limit of 1,250) = ₹1,250
Employer Contribution EPF = (₹3,600-₹1,250) = ₹2,350
Total Monthly EPF Contribution = ₹3,600 + ₹2350 = ₹5,950
Contribution in PF till April 1, 2022
Total EPF contribution in April = ₹ 5,950
EPF interest in April = Nil (No interest in first month)
EPF account balance at the end of April = ₹ 5,950
EPF contribution in May = ₹ 5,950
EPF account balance at the end of May = ₹ 11,900
Monthly interest calculation = 8.10% / 12 = 0.00675% Interest calculation
on EPF for May = ₹ 11,900 * 0.00675% = Rs 80.32
What is the formula of interest on provident fund
The interest rate for any financial year is notified by the government. At the end of the current financial year, the calculation of interest (EPF interest) is done. By adding the balance amount on the last date of every month of the year, dividing that amount by dividing the fixed interest rate by 1200, the interest amount is extracted.
