EPFO interest calculation: Interest calculation (EPF Interest calculation) is done on the basis of the money deposited in the EPF account every month i.e. monthly running balance. But, it is deposited at the end of the year.
EPFO interest calculation: In the provident fund account (EPF account), both the employee and the employer deposit 24% of the basic and dearness allowance together. Every year the government pays interest on the amount deposited in this EPF account. The interest of the previous financial year has also started being credited. However, due to technical issue, some accounts have not been reflected yet. But, do you know how the interest calculation is done in EPF account?
Calculation of interest on EPF
The account holder would think that interest is received on the entire money deposited in the Provident Fund. But, this does not happen. There is no interest calculation on the amount that goes to the pension fund in the EPF account. EPF interest calculation is done on the basis of the money deposited in the EPF account every month i.e. monthly running balance. But, it is deposited at the end of the year.
What is the rule of EPFO?
According to EPFO rules, if any amount has been withdrawn during the year from the balance amount as on the last date of the current financial year, interest for 12 months is deducted from it. 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.
Disadvantages due to frequent withdrawal
If any amount is withdrawn during the current financial year, then the amount of interest (EPF Interest calculation) is taken from the beginning of the year till the month immediately preceding the withdrawal. The closing balance (PF Balance) of the year will be its opening balance+contribution-withdrawal (if any)+interest.
Understand like this
- 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 to EPF
- If seen from the beginning of the financial year, then the total EPF contribution = ₹ 5,950
- Interest in EPF = 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 (EPF Interest calculation) = 8.15%/12 = 0.00679166%
- Calculation of interest on EPF for May= ₹11,900*0.00679166%= ₹81.43
This formula is applied
The interest rate for any financial year is notified by the government. Interest calculation (EPF Interest calculation) is done at the end of the current financial year. The interest amount is calculated by adding the balance amount on the last date of every month of the year and dividing the fixed interest rate by 1200.
