The EPFO decides the speed of curiosity for the EPF scheme on a yearly foundation
The Central Board of Trustees of Workers’ Provident Fund Organisation (EPFO) has really helpful an 8.50% annual fee of curiosity to be credited for EPF subscribers accounts for the monetary yr 2020-21.
Strategies for the calculation of EPF rates of interest
The EPFO decides the speed of curiosity for the EPF scheme on a yearly foundation. The speed of curiosity depends in the marketplace situations and is vetted by the finance ministry. The rate of interest could be calculated both through the use of the step technique or the system technique. The speed of curiosity for the FY 2020-2021 is 8.5%.
For instance, we assume, EPF Primary wage and dearness allowance to be ₹15,000 and with a present fee of curiosity of 8.5%
Instance of calculation of curiosity for a monetary year-
Basic Salary + Dearness Allowance = ₹ 15,000
Worker’s contribution in the direction of EPF = 12% of ₹ 15,000 = ₹ 1,800
Employer’s contribution in the direction of EPS = 8.33% of ₹ 15,000 = ₹ 1,250
Employer’s contribution in the direction of EPF = Worker’s contribution – Employer’s contribution in the direction of EPS = ₹ 550
Complete EPF contribution each month = ₹ 1,800 + ₹ 550 = ₹ 2,350
The rate of interest for 2019-2020 is 8.50%.
When calculating curiosity, the curiosity relevant monthly is = 8.50%/12 = 0.7083%
Complete EPF Contribution for the primary month = ₹ 2,350
Curiosity on the EPF contribution for April = Nil (No curiosity for the primary month)
EPF account stability on the finish of April = ₹ 2,350
Complete EPF Contribution for Could = ₹ 2,350
Complete EPF contribution for Could = ₹ 4,700
Curiosity on the EPF contribution for Could = ₹ 4,700 * 0.7083% = ₹33.29
Rate of interest on Inoperative EPF accounts
As per the legislation, a provident fund (PF) account turns into inoperative within the case the place an worker retires from service after attaining the age of 55 years or migrates overseas completely or dies and an software for withdrawal of his amassed stability just isn’t made inside 36 months. Till such time, the curiosity quantity will proceed to accrue on the PF corpus.
In Finances 2021, the federal government had proposed to tax the curiosity earned on contributions remodeled and above ₹2.5 lakh. At the moment, curiosity earned on PF contributions is tax-free. Even the amassed PF stability is exempt from tax if an individual has rendered steady service for a interval of 5 years or extra.