Step-by-Step Guide to Calculating the Interest Rate on Your EPF, 2023

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The Employee Provident Fund (EPF) is a significant social security and retirement savings scheme in India, governed by the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. The accumulated amount, along with the PF interest rate, accrues to provide financial security to employees after their retirement, ensuring long-term savings and contributing to their well-being.

EPF is a mandatory savings program for most employees working in organized sectors, including private and public sector companies. It aims to create a financial cushion for employees during their retirement years by facilitating regular contributions from both the employee and the employer.

Every month, the balance on the EPF account accrues interest at the prevalent rate. Over the years, the EPF interest rate compounds to generate a substantial retirement corpus for the employee. Let us understand how interest is calculated on EPF.

Key Elements of EPF Calculations

Before we look at EPF interest rate and calculation, it i important to know some of the basic terminology associated with employees’ provident funds:

  1. Basic Pay and House Allowance

Often referred to as the ‘basic pay’, basic salary is a fixed component of an employee’s salary that is agreed upon in the employment contract. It does not include any additional allowances, benefits, or bonuses. The house allowance or ‘House Rent Allowance’ (HRA), is an allowance provided by employers to employees to cover their rental expenses for accommodation. It is typically a fixed amount or a percentage of the basic salary.

  1. Employee Contribution

Employees contribute a portion of their salary to the EPF account. The contribution is typically 12% of the basic salary and dearness allowance. Employee’s contribution is deducted from the employee’s salary every month.

  1. Employer Contribution

Employers also contribute an equal amount to the EPF account on behalf of the employee. Out of the employer’s contribution, a portion is allocated to the Employee Pension Scheme (EPS) and the rest to the EPF account.

  1. Contribution to Pension Scheme (EPS)

A part of the employer’s contribution goes toward the Employee Pension Scheme. This scheme provides a pension to the employee after retirement or in the event of their death, disability, or incapacitation. Currently, contribution to the EPS is capped at 8.33% of Rs. 15,000 basic salary, i.e., Rs. 1,250. Any amount above that is credit to the EPF account.

  1. Voluntary Provident Fund (VPF)

In addition to the mandatory contribution, employees have the option to contribute more to the EPF through the Voluntary Provident Fund. This allows employees to enhance their retirement savings voluntarily. While the current minimum EPF contribution for employees is 12%, an employee can choose to contribute more than that.

  1. Interest

The EPF balance earns interest, which is declared by the government annually. The interest is compounded on a yearly basis and added to the employee’s EPF account. The current rate of interest varies based on the government’s declaration. The current interest rate on EPF for FY 2022-23 is 8.15%, compounded monthly.

Understanding How EPF Contributions Work

All employees, employed with public or private organizations, who fall under the EPF scheme make a fixed contribution of 12% of the basic salary and the dearness allowance towards the scheme.

Therefore, if your salary is basic salary + dearness allowance is Rs. 40,000, then your contribution to EPF will be:

  • 12/100 * 40,000 = Rs. 4,800

The employer’s contribution can either be the same, that is, 12% of the salary, or the amount you have chosen for your EPF contribution if it is higher than 12%.

In this case, we will assume that the employer’s contribution is 12%. Among the 12%, Rs. 1,250 will go toward your EPS (Employee Pension Scheme ) account. 

Therefore, the employer’s contribution will be as follows:

  • 12% of 40,000- 1,250 = Rs. 3,550

Hence, the total amount added to your PF account every month (both your and employer’s contribution) will be:

  • 4,800 + 3,550  =  Rs. 8,350.

The total interest rate applicable for the year 2022-23 is 8.15%. So, let us calculate the monthly and yearly interest earned on this amount:

Calculating Interest on Your EPF Contribution

Month 1– The balance account accumulated in your first month will be Rs. 8,350

Interest on EPF- 8.15%/12 = 0.679%

  • 0.679/100 * 8,350 = Rs. 56.7 

Carry-forward balance = Rs. 8,350 + 56.7 = Rs. 8,406.7

Month 2– The balance account added to your EPF account in the second month will be Rs. 8,350. Therefore, the total balance will be

  • 8,406.7 + 8,350 = Rs. 16,756.7

Let’s calculate the monthly interest again:

  • 0.679/100 * 16,756.7 = 113.77

Total Balance at the end of Month 2 = Rs. 16,870.5

Accordingly, the interest and amount would compound to accumulate to around Rs. 1,04,000 to Rs. 1,08,000 by the end of the year. 

To easily calculate the interest rate earned on your EPF and find out how much you can expect to receive at retirement, use an EPF calculator for accurate estimations.


Understanding EPF interest calculations is pivotal for financial security. The EPF ensures retirement savings through both employee and employer contributions. This guide demystifies contributions, interests, and calculations. Compounded annually, contributions and interest generate substantial retirement funds. This financial foundation fosters stability and growth, shaping a secure future. For clarity, employ EPF calculators to visualize potential outcomes. Ultimately, grasping how your EPF contributions shape retirement can help you master your EPF for a resilient financial journey ahead.


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Amit Arora

I am a seasoned retail banker with over 21 years of global experience across business, risk and digital. In my last assignment as Global Head Digital Capabilities, I drove the largest change initiative in the bank to deliver the end-to-end digital program with over US$1 billion in planned investment. Prior to that, as COO for Group Retail Products & Digital, I implemented a risk management framework for retail banking across the group.
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