How is the provident fund calculated? Know the PF calculation formula here
Provident Fund Calculator: Almost all salaried workers in India have an account with the Employees Provident Fund Organization which serves as their source of income after retirement. Every month, a certain amount of money is deducted from the employee’s salary, which is credited to him after retirement. The same amount of money is also provided by the employee’s company every month. The Organization of the Employees’ Provident Fund, or EPFO, the State’s superior pension body, designed the employees’ scheme so that they could fall back on the corpus acquired from it after their departure from retirement.
The minimum monthly contribution for the employee is 12 percent of base salary, but he or she can choose to contribute up to 100 percent of it. However, the employer is not required to match this figure and may pay the minimum contribution of 12 percent that must be paid in PF. The employee receives an amount of interest credited to his PF account after the addition of the two contributions.
How is the PF calculated?
Paragraph 60 of the 1952 Employees Provident Fund Scheme mentions the rules relating to the calculation of interest on contributions to the Provident Fund. It should be noted in this respect that the monthly current balance of the employee’s EPF account is taken into account in the calculation of interest. Currently, the government offers an 8.5% interest rate on EPF contributions.
PF calculations are made on the basis of three main elements – the opening balance, contributions during the year and withdrawals during the year. Interest for 12 months is credited based on the closing balance of the PF amount as of the last date of the previous year, less the sum withdrawn during the current year.
PF calculation formula
Once the government notifies the interest rate for a financial year and the current year ends, EPFO calculates the monthly closing balance. Then, the interest for the whole previous year is calculated by adding the current balance of each month. Then it is multiplied by the interest rate and then divided by 1,200.
For example, if the interest rate is 8.1% and the sum of the monthly balance is Rs 10,00,000, the interest amount will be 1104740x 8.1/1200 = Rs 6,750
Also, the closing balance for that year will be calculated by adding the opening balance and the contributions, then subtracting the withdrawal and interest.
If a member takes the final settlement, the calculated interest is added to the settlement amount. The employee’s share and the employer’s share of the provident fund interest are calculated separately.
EPFO recently notified that PF money can be withdrawn through the government’s UMANG app – a unified app to access various pan-Indian services. It can also be withdrawn through the UAN portal.
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