EPF is a retirement benefits scheme under the Employees Provident Fund and Miscellaneous Act, 1952, where an employee has to pay a certain contribution towards the scheme and an equal contribution is paid by the employer as well on a month on month basis. The Scheme is managed by Employee Provident Fund Organization (EPFO).
The employee gets a lump sum amount including self and employer’s contribution with interest on both, on retirement and during the service period (under certain circumstances as stipulated). The principle amount and the accrued interest are exempt from income tax during withdrawal and thus an attractive retirement plan for the salaried class. The Scheme covers all entities in which 20 or more employees are employed and certain entities are covered, subject to certain conditions and exemptions even if the required 20 staff criteria are not met.
The Interest rate of EPF is reviewed every year after consultation with the Ministry of Finance by EPFO’s Central Board of Trustees. The PF interest rate of 2021 is fixed at 8.55% (same as last year). Provident fund Interest rates for the last five years are mentioned below:
|Year||EPF Interest Rate|
The interest rate on EPF is reviewed on a yearly basis. The EPF interest rate for the fiscal year 2021-22 is 8.50%. When the EPFO announces the interest rate for a fiscal year and the year closes, the interest rate is computed for the month-by-month closing balance and then for the entire year.
The year in which the new interest rates are published remains valid for the following fiscal year, i.e. from the year beginning on April 1st of one year to the year ending on March 31st of the following year. Here are a few key points to remember about EPF Interest Rate:
Depending on the entity contributing towards EPF, there are two components of the contribution namely – employee and employer contribution. The employee contributes 12% of basic salary plus dearness allowance (DA) towards its EPF account. The employee has to contribute a lower contribution of 10% in case the entity has less than 20 employees and or if the entity is certain designated industries such as Jute, Beedi, Brick, etc.
The employer contributes a similar amount to the scheme (12% of employee’s basic salary plus DA). 8.33% of such employer contribution goes towards the Employee Pension Scheme (EPS) subject to a ceiling of 1,250 per month if the salary of the employee is 15,000 or more and the rest 3.67% is added to the EPF account of the employee. The employer also contributes 0.50% towards Employees’ Deposit Linked Insurance (EDLI) account of the employee.
Pertinent to note here, the employee can also voluntarily contribute higher than the statutory requirement of 12% and is called contribution towards Voluntary Provident Fund (VPF) which is accounted separately. The VPF also provides tax free interest however the employer is not required to contribute anything to VPF if the employee chooses to opt for it.
Every month the interest rate is calculated but is deposited in the account at the end of the financial year. The interest calculation on the EPF of the employee is explained by the given example.
Basic Salary + Dearness Allowance = ₹ 30,000
Employee’s contribution towards EPF = 12% of ₹ 30,000 = ₹ 3,600
Employer’s contribution towards EPS (subject to limit of 1,250) = ₹ 1,250
Employer’s contribution towards EPF = (₹ 3,600 – ₹ 1,250) = ₹ 2,350
Total EPF contribution every month = ₹ 3,600 + ₹ 2350 = ₹ 5,950
The employee provident fund interest rate for 2019-2020 is 8.65%.the interest applicable per month When calculating interest, is = 8.65%/12 = 0.7083%. Again to remind, the provident fund interest will be calculated at the end of every month however the interest amount will only be credited at the end of the financial year.
Assuming the employee joined service on 1 April 2019, contributions start for the financial year 2019 – 2020 from April 2019 only.
Total EPF Contribution for April = ₹ 5,950
For April Interest on the EPF contribution= Nil (No interest for the first month)
EPF account balance at the end of April = ₹ 5,950
EPF Contribution for May = ₹ 5,950
Total EPF account balance as at May = ₹ 11,900
Interest on the EPF contribution for May = ₹ 11,900 * 0.7083% = ₹ 84.29
Q1. What are the Withdrawal permissions from EPF amount including epf interest under the rule?
In normal circumstances, an employee is able to withdraw the principal amount including the accrued interest upon retirement. However, anyone over 54 years of age is permitted to withdraw 90% of the accumulated balance. If an individual is out of employment for 60 days or more, the employee is entitled to withdraw the entire accumulated balance on that date.
Q2. What is a Universal Account Number (UAN)?
Unique UAN number is allocated to subscribers to the scheme by EPFO. The UAN acts as an umbrella for multiple member IDs issued by different organizations where the concerned employee has worked. Upon allocation of UAN, the employee is required to provide the same on joining a new organization so that the new member ID can be mapped under the same UAN. Such details are provided via Form 11.
Q3. Can you avail advances against your EPF balance?
The contribution to the scheme is meant to take care of the post-retirement needs however one does not have to wait until retirement to avail financial assistance to meet certain obligations. These advances are allowed only upon certain situations like buying a house, repaying a home loan, education or marriage of children etc. Unlike a loan, it is not necessary to repay the advances availed.
Q4. What are the Income tax exemptions on EPF?
Contribution, interest accrued and withdrawals are exempt from the income tax (EEE model). Contribution up to 150,000 is admissible for deduction under Sec 80C of the Income Tax Act.
Q5. What are the Contribution limits to Voluntary Provident Fund Scheme?
Entire, 100% of basic salary plus Dearness Allowance can be contributed to VPF. The contribution to VPF is entitled to deduction under section 80C of the Income Tax Act subject to the 150,000 limit.