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How is interest calculated for EPF
by Archana Hegde Financial LearnerThe contribution for EPF is same for the employer and employee if the Basic + DA is less than Rs.15,000. If the Basic + DA is more than Rs.15,000, you have the option to have this investment or to opt out of it. The following is the contribution that the employee and employer will be distributed if your Basic + DA is less than or equal to Rs.15,000:
Particulars | Employer contribution | Employee contribution |
Employees’ Provident Fund | 3.67% | 12% |
Employees’ Pension Scheme | 8.33% | - |
Employees’ Deposit Linked Insurance Scheme | 0.50% | - |
EPF admin charges | 1.10% | - |
EDLIS admin charges | 0.01% | - |
If the Basic + DA is more than Rs.15,000, then the employer will decide how much they will be contributing. They will consider the following options:
Employer may contribute equal to your contribution.
Employer may restrict its share to Rs.15,000 and your share as 12% of your salary.
Employer will restrict both yours and their contribution to Rs.15,000 only.
EPS contribution is fixed at 8.33% and other contributions will change accordingly.
EPF accounting year starts from March and ends in February but the interest is credited in April every year. The EPF interest is compounded every year and the method used is Average monthly balance calculation method.
Let’s consider that Mr.Anup has joined the company on 1st June and his Basic + DA is Rs.6,500 and he has had no prior EPF balance in his account. If the EPF interest is considered at 8.50%, the below table illustrates the calculation method:
Month | Employer contribution - 3.67% of your salary | Employee contribution – 12% of your salary | Month end balance | Interest earned |
June | Rs.239 | Rs.780 | Rs.1,019 | No interest |
July | Rs.239 | Rs.780 | Rs.2038 (Rs.1,019 + Rs.1,019 | Rs.7 (Rs.1,019 * 8.5% / 12) |
August | Rs.239 | Rs.780 | Rs.3,057 (Rs.2,038 + Rs.1,019) | Rs.14 (Rs.2,038 * 8.5% / 12) |
September | Rs.239 | Rs.780 | Rs.4,076 (Rs.3,057 +Rs.1,019 | Rs.22 (Rs.3,057 * 8.5% / 12) |
October | Rs.239 | Rs.780 | Rs.5,095 (Rs.4,076 + Rs.1,019) | Rs.29 (Rs.4,076 * 8.5% / 12) |
November | Rs.239 | Rs.780 | Rs.6,114 (Rs.5,095 + Rs.1,019) | Rs.36 (Rs.5,095 * 8.5% / 12) |
December | Rs.239 | Rs.780 | Rs.7,133 (Rs.6,114 +Rs.1,019) | Rs.43 (Rs.6,114 * 8.5% / 12) |
January | Rs.239 | Rs.780 | Rs.8,152 ( Rs.7,133 + Rs.1,019) | Rs.51 (Rs.7,133 * 8.5% / 12) |
February | Rs.239 | Rs.780 | Rs.9,171 (Rs.8,152 +Rs.1,019) | Rs.58 (Rs.8,152 * 8.5% / 12) |
Total balance | Rs.7,020(employee contribution) + Rs.2,151(employer contribution) + Rs.260(interest) = Rs.9,431 | |||
Rs.9,431 is the balance for the beginning of the new year. Interest is rounded off to the nearest rupee. In the case of death claim, the interest is restricted to the month preceding the month in which the death occurred.
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About Archana Hegde 
Financial Learner
5 connections, 0 recommendations, 21 honor points.Joined APSense since, October 21st, 2015, From Bangalore, India.
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