Salaried people contribute a hard and fast quantity every month in direction of the Employee Provident Fund and an identical contribution is made by the employer. The minimal month-to-month contribution is 12 per cent of the essential pay. However, a voluntary contribution as much as 100 per cent of primary wage might be made by the worker. The employer needn’t match voluntary contributions and might persist with the 12 per cent contribution. Taking the staff’ and the employer’s contribution collectively, the curiosity quantity will get credited to the PF account of the worker.
The rate of interest is notified by the federal government for every monetary 12 months. For the FY 2021-22, the EPF rate of interest is 8.1 per cent. The guidelines associated to the calculation of Interest on Provident Fund Contributions are laid down underneath Para 60 of the Employees’ Provident Fund Scheme 1952.
In EPF, the curiosity is credited on the month-to-month working steadiness. Three issues are necessary throughout calculation of PF curiosity quantity – Opening steadiness, contributions in the course of the 12 months and any withdrawals in the course of the 12 months.
Interest for 12 months will probably be credited based mostly on the closing steadiness of the quantity as on the final date of the previous 12 months much less any sum withdrawn in the course of the present 12 months.
If one has withdrawn any quantity in the course of the present 12 months, then iInterest from the start of the 12 months until the final date of the month previous the month wherein withdrawal happened will probably be credited.
On the PF contributions credited in the course of the present 12 months, the curiosity from the primary date of month succeeding the month of credit score, until the final date of the present 12 months will get credited within the PF account.
Provident Fund Calculation Formula
Once the rate of interest for any Financial Year is notified, and the present 12 months ends, the month sensible closing steadiness is calculated. Then the curiosity for the entire 12 months is calculated by including the month-to-month working steadiness and multiplying it with the rate of interest / 1200.
Assuming rate of interest of 8.65%, the quantity of curiosity = 1104740* 8.65/1200= Rs 7963
Closing steadiness for the 12 months will probably be: Opening steadiness + Contributions – withdrawal + Interest
= Rs 112345 + 1200 – 25000 + 7963 = Rs 96508
In case of a member taking the ultimate settlement, the curiosity calculated is added in his settlement quantity. Interest is individually calculated for the Employee Share and Employer Share of Provident Fund.
No curiosity is calculated on Pension Contribution in direction of the staff’ pension scheme since advantages are based mostly on the service size and common wages on the time of exit, whether or not the profit is thru Pension or Withdrawal Benefit.
During ultimate settlement, in case a member is taking a ultimate settlement and the curiosity for the present 12 months just isn’t notified, curiosity is credited on the idea of the speed declared for the instantly previous 12 months. However on declaration of curiosity whether or not at much less or increased charge no revision of the settled quantity is finished.
Source: www.financialexpress.com”