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EPF Decreased From 8.5% To 8.1%

By - Hymavathy Deenadayalan on June 30, 2022

EPF Interest Rate Decreased From 8.5 % To 8.1%

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) run by the Employees' Provident Fund Organization (EPFO). Once the interest rate for any financial year is notified, and the current year ends, EPFO calculates the month-wise closing balance and then the interest for the whole year. 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, no interest is calculated on a pension contribution. Of the employer's 12% contribution, 8.33% goes towards pension corpus. Interest is separately calculated for the employee share and employer share of the provident fund.

The union government has approved an 8.1% rate of interest on employee provident funds or EPF deposits for 2021-22. The interest rate is notified after the approval of the Union Finance Ministry, following which interest is credited into its subscribers' accounts. In March, retirement fund body EFPO or Employees' Provident Fund Organization had cut the interest rate on employees' provident fund deposits to a four-decade low of 8.1% for 2021-22, from 8.5% in the previous year. This is the lowest interest rate (since 1977-78) on deposits that employees make towards their retirement fund, which was 8%.

Including the government securities and bonds, the EPFO invests 85% of its annual accruals in debt instruments and 15% in equity through ETFs. The earnings from both debt and equity are used to calculate the interest payment.

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