How EPFO will calculate your PF credit interest for FY 2022-23?

A savings scheme developed for employees working for different organisations in the private sector, the Employees' Provident Fund (EPF) serves as a financial security for retirement years. The EPF scheme is managed and operated by Employees' Provident Fund Organisation (EPFO).

As per the EPFO rules, every establishment having 20 or more employees is mandated to offer EPF facility to its employees. Under the EPF scheme, the employee contributes 12 per cent of his basic salary and an equal amount is contributed by the employer.

EPFO calculates the interest on a monthly basis, while the accrued amount is deposited into the account at the end of the fiscal year.

Currently, the rate of interest on EPF deposits is 8.15 per cent per annum for the financial year 2022-23.

As EPFO has already declared the interest rate for FY 2022-23, let's decode how the PF credit interest will be calculated for the mentioned fiscal year.

PF credit interest for FY 2022-23

While the interest is calculated on a monthly basis in an EPF account, deposits are made at the end of the fiscal year. The transferred interest is then compounded and applied to the balance for the next month to determine interest on that month's balance. Notably, the rate of interest is decided on a yearly basis by the EPFO and it is dependent on the market conditions and is vetted by the Union Finance Ministry.

From the employer’s contribution 8.33 per cent goes towards the pension scheme and 3.67 per cent goes towards the EPF deposit. This amount is also taken into consideration for interest calculation.  

The calculations for the rate of interest can be done by using the formula in which the interest rate (8.15 per cent) is divided by 12 months to determine the monthly interest rate. As per the current interest rate, the monthly interest rate will be 0.679 per cent (8.15/12)

Total monthly interest amount = Total EPF Balance*0.679%

The inactive accounts, where contributions have not been made for over 3 years, are also eligible to earn interest.