Rs. 5000 EPF Interest Calculation | EPFO helps you to Retire Early

EPF Interest calculation examples

EPF or Employee Provident Fund helps you to retire early by consistently investing in EPFO funds every month based on your salary. You contribute 12% of your basic salary + DA allowance every month and your employer also contributes the same amount. In employer’s contribution, 3.67% goes to EPF and remaining 8.33% goes to EPS (Employee Pension Scheme). EPF Interest Calculation is done on monthly basis and is compounded on yearly basis. For FY 2023-24, the EPF interest rate is 8.25% and is reviewed by government of India every year.

Let us understand how EPF interest is calculated in your EPF account. Watch below video to understand the interest calculation in EPF.

Table of Contents

Rs. 5000 EPF Interest Calculation Video

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The above video explains you how interest is calculated o monthly basis with examples. EPFO helps you to retire early if you consistently contribute for next 25 to 30 years and see magic of compounding in later stages of EPF account.

How Interest is Calculated in EPF

  • EPF interest is calculated on monthly basis based on the current balance in your account
  • For example, if your balance in EPF account is Rs. 1 Lakh, below is the interest calculation for a month
EPF monthly Interest = Monthly Interest Rate * Balance / 100
EPF monthly Interest = (8.25% / 12) * Rs. 1 Lakh / 100
EPF monthly Interest = (0.6875%) * Rs. 1 Lakh / 100
EPF monthly Interest = Rs. 687.5
  • As seen above, your interest in EPF will be Rs. 687.5 for that month based on the balance and interest rate
  • Similarly, the interest is calculated every month based on the balance that is updated after every month’s contribution
  • It is important to note that the EPS (Employee Pension Scheme) does not earn you interest
  • Only EPF account funds will earn you interest every month and compounded on annual basis based on above calculation

EPFO funds to Retire Early

You can get early retirement while using the funds in EPF. As seen in above video, consistent contribution for next 25 to 30 years can help to to retire before 55 years of age based on your monthly expenses and lifestyle.

We can see the magic of compounding in later stages of EPF account, once we have enough corpus in the funds. This helps to get retirement and not work up to the age of 60 years which is common in India.

You can use the extra years you get before 60 years, to plan for vacations and pursue your dreams you always wanted to make time for, while working on a job

EPF Latest Interest Rate

The latest interest rate in EPF is 8.25% for FY 2023-24. This interest rate is updated every year by government of India and accordingly the yearly interest will be calculated and credited to your EPF account

Is PF interest compounded monthly?

No, PF interest is compounded on yearly basis, but the interest is calculated on monthly basis.

So after every month, the interest is calculated on the EPF balance. This monthly interest will be summed up for entire financial year and then will be credited at the end of financial year.

In this way, you get yearly compounding in EPF account.

How to check PF interest amount Video

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Above video helps you to understand how you can check the PF balance online using EPF passbook. Note that you get interest only in EPF account and not in EPS account and the difference between EPF and EPS account is explained in above video.

Conclusion

So as seen above, EPF interest is calculated on monthly basis and is compounded on yearly basis. Employee contributes 12% of basic salary + DA in EPF account and employer also matches this contribution.

From employer’s contribution, 3.67% goes to EPF account and earns more interest, where as 8.33% goes to EPS account which does not earn interest. The contribution from employer to EPS is capped at Rs 1500 per month, and the remaining amount goes to EPF funds.

Some more Reading:

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