PF for employees is the best way to save for old age for a good future. Do you know how the interest on PF is calculated? How much money can you deposit in PF annually? Let’s know about PF, how your PF balance increases after interest…
PF contribution is made on more than 20 employees
Employee Provident Fund (EPF) is a way to save for retirement. Contribution to EPF has to be made if there are 20 or more employees in a company. In this, 12 percent of the basic salary is deposited by the employee and the employer deposits 8.33 percent in the Employees’ Pension Scheme and 3.67 percent in the EPF. Interest is paid on the basis of the monthly operating balance which is added to the fund at the end of the financial year.
What is the current interest rate of PF?
The interest rate on EPF depends on the market conditions. The current interest rate on this is 8.5 percent, which is the same as the previous financial year.
Interest Calculation The interest can be calculated as
follows assuming the basic salary and dearness allowance of an employee is Rs 15,000 and the interest rate is 8.5 percent.
Basic Salary and DA = Rs 15,000
Employee Contribution to EPF = 12% of Rs 15,000 = Rs 1,800
Employer Contribution to EPS = 8.33% of Rs 15,000 = Rs 1,250
Employer Contribution to EPF = 3.67% of Rs 15,000 = Approx Rs 550
Total contribution = Rs 2,350
Current interest rate = 8.5% p.a.
Interest is calculated on monthly operating balance and hence interest per month will be = 8.5% /12 = 0.7083%
No interest on EPF for 1st month
2nd month contribution = Rs 2,350
Total EPF balance = Rs 4,700.
EPF contribution interest = Rs 4,700 * 0.7083% = Rs 33.29.
How much can be deposited annually in PF
Finance Minister Nirmala Sitharaman recently said that the limit of tax-free PF contribution has been increased to 5 lakh per annum for the employees. Earlier in the budget, it was proposed to increase this limit to Rs 2.5 lakh annually, which was later changed.
How much can be deposited in PF,
employees have to contribute 12 percent of PF basic salary. Private employees have fewer options to increase PF contribution but government employees have the option to increase this limit.