The Central Board of Trustees of Employees’ Provident Fund Organisation (EPFO) has recommended 8.50% annual rate of interest to be credited for EPF subscribers accounts for the financial year 2020-21. EPFO has more than five crore active subscribers. For 2019-20, EPFO had provided an interest rate of 8.5% and for 2018-19, 8.65%. The Ministry of Labour said interest rate would be officially notified in the government gazette following which EPFO would credit the rate of interest into the subscribers’ accounts.
EPFO had started investing in equity through exchange traded funds (ETFs) based on the NSE 50 and BSE 30 indices. The investment in equity assets started from 5% for FY 2015 and subsequently gone up to 15% of the incremental portfolio.
Both employees and employers together contribute 24% of the basic salary plus dearness allowance on a monthly basis towards the employee’s provident fund (EPF).
How EPF interest is calculated:
1) Once the interest rate for a financial year is notified, and the current year ends, EPFO calculates the month-wise closing balance and then the interest for the whole year. It is calculated by adding the monthly running balance and multiplying it with the interest rate /1200.
2) In case a member is taking a final settlement and the interest for the current year is not notified, interest is credited on the basis of the rate declared for the immediately preceding year.
3) If any sum is withdrawn during the current year, interest from the beginning of the year till the last date of the month preceding the month in which withdrawal took place is taken into account.
4) No interest is calculated on pension contribution since benefits are based on the service length and average wages at the time of exit, whether the benefit is through pension or withdrawal benefit, says EPFO. Of the employer’s 12% contribution, 8.33% goes towards pension corpus. ReadMore
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