EPF Calculation: Provident Fund Account is a good savings option. EPFO manages the accounts of crores of account holders. In these accounts, 24 per cent of the basic and dearness allowance of both the employee and the employer is deposited. Every year the government fixes interest on the amount deposited in this EPF account. Do you know how EPF calculation is done? Generally, account holders assume that interest is earned on the entire money deposited in the Provident Fund. But, it doesn’t happen. No interest is calculated on the amount that goes to the pension fund in the PF account.
Check how much fund will be received
You will get salary slip every month. You can see your basic salary and DA in your salary slip. Every employee’s basic salary plus 12% of DA 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. The interest is reviewed every year, but the advantage of this is that having compounding interest also gives double benefit in interest.
Your PF will be Rs 1.48 crore on 10 thousand basic salary
EPF member’s age 25 years
Retirement age 58 years
Basic salary Rs 10,000
Interest rate 8.65%
Salary increase 10% (annual)
Total fund Rs 1.48 crore
How much will be your PF on 15,000 basic salary
EPF Member Age 25 Years
Retirement Age 58 Years
Basic Salary Rs 15000
Interest Rate 8.65%
Salary Increase 10% (Annual)
Total Fund Rs 2.32 Crore
How to calculate interest on PF
Interest is calculated on the basis of monthly running balance deposited in the PF account every month. 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 According to the rules of EPFO, if any amount is withdrawn in a year from the balance amount on the last date of the current financial year, then it is deducted 12 months interest.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 also causes damage
If any amount is withdrawn during the current financial year, then the amount of interest (PF interest calculation) is taken from the beginning of the year to the month immediately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 1st April 2020
Total EPF contribution in April = ₹ 5,950
Interest on EPF 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 = 8.50% / 12 = 0.007083% Interest calculation
On EPF for May = ₹ 11,900 * 0.007083% = ₹ 84.29
This formula is applied
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.
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