Under the EPF scheme, both the employer and the employee have to contribute 12% of the employee’s dearness allowance and basic salary to the employee’s EPF account every month. As per the law, any business that has equal to or more than 20 employees is bound to enroll under the Employees’ Fund Provident Organization. Moreover, there can be only one EPF account for each employee.
Since the idea behind the EPF scheme is to provide financial aid to employees, EPFO allows all employees to withdraw a part of their EPF after a year of working, in case of emergency. On top of this, the funds accumulated in the employee’s EPF are accumulated with an interest of 8.5%.
The EPFO reviews the interest rate offered on the amount collected in employees’ EPF account every year. The interest rate is decided after discussion between the Central Board of Trustees of EPFO and the Ministry of Finance at the end of every financial year.
Historical & Current EPF Interest Rates
The EPF interest rate for the financial year 2021 is 8.5%. Given below is a list of interest rates of some of the previous years-
| 2021 – 2022 | 8.10% |
| 2020 – 2021 | 8.50% |
| 2019 – 2020 | 8.50% |
| 2018 – 2019 | 8.65% |
| 2017 – 2018 | 8.55% |
| 2016 – 2017 | 8.65% |
| 2015 – 2016 | 8.80% |
| 2013 – 2015 | 8.75% |
| 2012 – 2013 | 8.50% |
| 2011 – 2012 | 8.25% |
| 2010 – 2011 | 9.50% |
| 2005 – 2010 | 8.50% |
| 2004 – 2005 | 9.50% (9% Interest + 0.5% Golden Jubilee bonus interest) |
| 2001 – 2004 | 9.50% |
| 2000 – 2001 | 12% (April-June, 2001) and 11% (July 2001 onwards) on the monthly running balance |
| 1989 – 2000 | 12.00% |
| 1988 – 1989 | 11.80% |
| 1987 – 1988 | 11.50% |
| 1986 – 1987 | 11.00% |
| 1985 – 1986 | 10.15% |
| 1984 – 1985 | 9.90% |
| 1983 – 1984 | 9.15% |
| 1982 – 1983 | 8.75% |
| 1981 – 1982 | 8.50% |
| 1979 – 1981 | 8.25% |
| 1978 – 1979 | 8.25% + 0.5% bonus (for members who did not withdraw any amount from their PF during 1976-1977 & 1977-1978) |
| 1977 – 1978 | 8.00% |
| 1976 – 1977 | 7.50% |
| 1975 – 1976 | 7.00% |
| 1974 – 1975 | 6.50% |
| 1972 – 1974 | 6.00% |
| 1971 – 1972 | 5.80% |
| 1970 – 1971 | 5.70% |
| 1969 – 1970 | 5.50% |
| 1968 – 1969 | 5.25% |
| 1967 – 1968 | 5.00% |
| 1966 – 1967 | 4.75% |
| 1965 – 1966 | 4.50% |
| 1963 – 1964 | 4.25% |
| 1957 – 1963 | 4.00% |
| 1955 – 1957 | 3.50% |
| 1952 – 1955 | 3.00% |
EPF Contribution Rates
On the monthly basis, both the employee and the employer contribute to the employee’s EPF account in the following manner-
- Employee’s contribution – The employee contributes 12% of his/her dearness allowance and basic salary to his/her own Employee Provident Fund (EPF) account. However, if the employee’s organization has less than 20 employees or works for industries such as jute, beedi, brick, coir or guar gum factories, then he/she will be contributing 10% to his/her EPF account.
- Employer’s contribution – The employer contributes a total of 12% of the employees’ dearness allowance and basic salary to the following-
- 8.33% to the Employees’ Pension Scheme (EPS)
- 3.67% to the Employees’ Provident Fund (EPF)
- 0.50% to the Employees’ Deposit Linked Insurance (EDLI)
Apart from this, the employer has to pay an additional charge of 0.50% for administrative accounts with effect from 1 June 2018. If the employer fails to contribute for any specific month, he/she will have to pay a charge of Rs. 75 for that month; however, the minimum administrative charge is Rs. 500.
How is Interest on EPF Calculated?
Interest on EPF is calculated on a monthly basis but it gets deposited to the employee’s EPF account annually. Let’s understand how interest is calculated on EPF with the help of an example-
Suppose that an employee, Mr. X has a monthly salary of Rs. 15,000 (Basic salary + Dearness allowance)
Now-
Employee’s contribution towards his EPF account will be Rs. 1800 (12% of 15,000)
Employer’s contribution towards EPS would be Rs. 1250 (8.33% of 15,000)
Employer’s contribution towards EPF would be Rs. 550 *3.67% of 15,000)
Total monthly contribution towards EPF = Rs. 2,350 (Rs. 1800 + Rs. 550)
Considering the current interest rate on EPF to be 8.5%, the monthly interest on EPF would be-
8.5% of 2,350 (8.5% of monthly EPF contribution) = 0.7083%
Now, assuming that the employee joined the organization on 1 April 2019, his contributions to his EPF account would be calculated from the financial year 2019 – 2020.
- Total EPF contribution in the month of April – Rs. 2,350
- Interest on EPF for the month of April – NIL (since no interest is offered on the first month of contribution to EPF)
- EPF account balance at the end of April – Rs. 2,350
- Total EPF contribution for the month of May (next month) – Rs. 4700 (2350 + 2350)
- Interest on the EPF contribution for the month of May – Rs. 33.39 (0.7083% of 4700)
It must be noted that while the interest on EPF will be calculated every month, it will be deposited only at the end of the financial year.
To Conclude:
EPF interest rate is decided by the EPFO and the Ministry of Finance for every financial year. It must be noted that even though the PF account interest rate is calculated on a monthly basis, the total interest is credited to the employee’s EPF account at the end of every financial year. Now, considering the interest rate for the financial year 2019-2020 to be 8.5%, the monthly interest rate would be calculated as 0.708%.
