Govt approves 8.15% interest rate on EPF; here's how to calculate retirement corpus

The government has ratified the rate of interest at 8.15 per cent rate on deposits under the Employees Provident Fund scheme for the financial year 2022-23.

Retirement fund body EPFO on March 28, 2023, had marginally raised the interest rate on employees’ provident fund (EPF) deposits to 8.15 per cent for 2022-23 for its over six crore subscribers.

As per an official order issued on Monday, the EPFO has asked the field offices for crediting the interest at 8.15 per cent on EPF for 2022-23 into the accounts of members. The order came after the finance ministry’s concurrence to the EPF rate of interest approved by EPFO trustees earlier in March this year.

Also read: EPFO fixes 8.15% interest rate on Employees’ Provident Fund for 2022-23

Now the EPFO field offices will start the process of crediting the interest into subscribers’ accounts. In March 2022, Employees’ Provident Fund Organisation (EPFO) had reduced the interest rate on EPF deposits for 2021-22 to a four-decade low of 8.10 per cent from 8.5 per cent in 2020-21. This was the lowest since 1977-78, when the EPF interest rate stood at 8 per cent.

Employees’ Provident Fund (EPF)

The EPF, commonly known as the Provident Fund (PF), is a retirement savings fund where both employers and workers contribute to the employees’ future. It is governed by The Employees’ Provident Funds Act 1952. It is mandatory for employers with a minimum of 20 employees to have EPF accounts for their workers.

The EPF offers a guaranteed return and the interest rate for the EPF scheme is set by the EPFO every year that varies annually. The interest is calculated monthly, and the accumulated interest is deposited into the EPF account at the end of the financial year.

Each month, an employee contributes 12% of their basic pay and Dearness Allowance to the EPF account. Simultaneously, the employer also matches this contribution with an equal amount. Of the 12% contributed, 8.33% goes towards the Employee Pension Scheme, while the remaining 3.67% is directed to the EPF.

EPF calculator

An EPF calculator is a valuable online financial tool that can estimate the total amount you will have in your EPF account upon retirement. By feeding in details like your current age, basic monthly salary, dearness allowance, monthly EPF contribution, and desired retirement age, the calculator can determine the accumulated corpus through EPF available to you at retirement.

The EPF calculator empowers individuals to make informed choices about their retirement savings. By accurately calculating the retirement corpus using the EPF calculator, one can take proactive steps towards securing a financially comfortable and stress-free retirement.

The Employees’ Provident Fund (EPF) calculator will assist you in calculating the amount of money you will accumulate on retirement.

Also read: Higher EPF pension: Govt extends deadline to June 26; 12 lakh apply so far

How to use it?

To arrive at the retirement corpus, you need to enter following details

1. Your present age and your retirement age.

2. Your basic monthly salary, your expected average annual increase in basic salary.

3. Your (employee’s) contribution to EPF and your employer’s contribution.

4. The interest rate earned on the EPF balances as declared by the government each year.

Once you key in the above information and press the submit button, the calculator will show how much you will save by the time you will retire.

How the calculation works

The contributions are made on a wage ceiling (Basic Salary + DA) of Rs 15,000. However, when the current income exceeds the wage ceiling, three standard methods are employed for calculating the contribution amount. The employer is free to use any one of the methods.

Once the contributions of the employee and the employer are computed, we calculate the interest on the contribution. The interest is computed on the opening balance of each month. As the opening balance for the first month is zero, the interest earned on the first month is zero as well. For the second month, interest is computed on the closing balance of the first month which is the same as the opening balance of the second month. The closing balance of the first month is calculated by adding the employee’s and the employer’s contribution for the first month. Similarly, the interest for the third month is computed on the closing balance of the second month. The closing balance of the second month is calculated by adding the closing balance of the first month and the employee as well as the employer contribution in the second month.

Also read: Higher EPF pension: Extra 1.16% to be drawn from employers’ payout

The sum of the employee as well as the employer contribution at the end of the year is added to the sum of the interest earned in each of the 12 months of the year. The result so obtained is the closing EPF balance at the end of the year. This amount becomes the opening balance for the second year. The interest in the first month of the second year is computed on the opening balance of the second year.

Total EPF balance at the end of the year = Balance at the end of 12 months (employee plus the employer contribution) + sum of the interest earned in each month of the year