EPF Interest Rate History (Updated 2020-21) & Interest Calculation EPF Balance

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Are you looking for EPF Interest Rate for the financial year FY 2020-21?.

EPF Interest Rate is 8.50% for the financial year FY 2019-20. This is as per the latest EPF interest rate 2019-20 notification of the government.

And the interest rate in the previous two years for EPF (Employee Provident Fund) was 8.65% (financial year 2018-19) and 8.55% (financial year FY 2017-18).

Employee Provident Fund scheme or EPF remains one of the first savings product that salaried employees begin their savings with. And if contributed well and without unnecessary withdrawals, EPF can be a great product to save a large retirement corpus over time.

Do you want to know the interest rate history of EPF in India in the last several years?

I will shortly share the full history of EPF interest rates since 1952. But in general, why is EPF seen as an important accumulator of retirement savings is because the rate of interest earned on the employee PF account is generally much higher than that on other debt investments. And most importantly, EPF comes with the added benefit of tax saving and falls under Exempt-Exempt-Exempt (EEE) tax regime. So it’s tax-free today and at the time of retirement.

Now without further ado, let’s see the historical EPF interest rates

EPF Interest Rate History (Updated 2020)

The EPF interest rates are declared by the EPFO or Employee Provident Fund Organization (for Government of India) every year.

As you know, currently the EPF Rate is 8.50% for financial year FY 2019-20 and the EPF interest is tax-free.

But what about the Employee Provident Fund Interest Rates in the previous financial years?

Here is the full history of VPF Interest Rates in India (since the financial year 1952-53):

  • Employee Provident Fund EPF Interest Rate 2019-20: 8.50%
  • Employee Provident Fund EPF Interest Rate 2018-19: 8.65%
  • Employee Provident Fund EPF Interest Rate 2017-18: 8.55%
  • Employee Provident Fund EPF Interest Rate 2016-17: 8.65%
  • Employee Provident Fund EPF Interest Rate 2015-16: 8.80%
  • Employee Provident Fund EPF Interest Rate 2014-15: 8.75%
  • Employee Provident Fund EPF Interest Rate 2013-14: 8.75%
  • Employee Provident Fund EPF Interest Rate 2012-13: 8.50%
  • Employee Provident Fund EPF Interest Rate 2011-12: 8.25%
  • Employee Provident Fund EPF Interest Rate 2010-11: 9.50%
  • Employee Provident Fund EPF Interest Rate 2009-10: 8.50%
  • Employee Provident Fund EPF Interest Rate 2008-09: 8.50%
  • Employee Provident Fund EPF Interest Rate 2007-08: 8.50%
  • Employee Provident Fund EPF Interest Rate 2006-07: 8.50%
  • Employee Provident Fund EPF Interest Rate 2005-06: 8.50%
  • Employee Provident Fund EPF Interest Rate 2004-05: 9.50%
  • Employee Provident Fund EPF Interest Rate 2003-04: 9.05%
  • Employee Provident Fund EPF Interest Rate 2002-03: 9.50%
  • Employee Provident Fund EPF Interest Rate 2001-02: 9.50%
  • Employee Provident Fund EPF Interest Rate 2000-01: 11.00%
  • Employee Provident Fund EPF Interest Rate 1999-00: 12.00%
  • Employee Provident Fund EPF Interest Rate 1998-99: 12.00%
  • Employee Provident Fund EPF Interest Rate 1997-98: 12.00%
  • Employee Provident Fund EPF Interest Rate 1996-97: 12.00%
  • Employee Provident Fund EPF Interest Rate 1995-96: 12.00%
  • Employee Provident Fund EPF Interest Rate 1994-95: 12.00%
  • Employee Provident Fund EPF Interest Rate 1993-94: 12.00%
  • Employee Provident Fund EPF Interest Rate 1992-93: 12.00%
  • Employee Provident Fund EPF Interest Rate 1991-92: 12.00%
  • Employee Provident Fund EPF Interest Rate 1990-91: 12.00%
  • Employee Provident Fund EPF Interest Rate 1989-90: 12.00%
  • Employee Provident Fund EPF Interest Rate 1988-89: 11.80%
  • Employee Provident Fund EPF Interest Rate 1987-88: 11.50%
  • Employee Provident Fund EPF Interest Rate 1986-87: 11.00%
  • Employee Provident Fund EPF Interest Rate 1985-86: 10.15%
  • Employee Provident Fund EPF Interest Rate 1984-85: 9.90%
  • Employee Provident Fund EPF Interest Rate 1983-84: 9.15%
  • Employee Provident Fund EPF Interest Rate 1982-83: 8.75%
  • Employee Provident Fund EPF Interest Rate 1981-82: 8.50%
  • Employee Provident Fund EPF Interest Rate 1980-81: 8.25%
  • Employee Provident Fund EPF Interest Rate 1979-80: 8.25%
  • Employee Provident Fund EPF Interest Rate 1978-79: 8.25%
  • Employee Provident Fund EPF Interest Rate 1977-78: 8.00%
  • Employee Provident Fund EPF Interest Rate 1976-77: 7.50%
  • Employee Provident Fund EPF Interest Rate 1975-76: 7.00%
  • Employee Provident Fund EPF Interest Rate 1974-75: 6.50%
  • Employee Provident Fund EPF Interest Rate 1973-74: 6.00%
  • Employee Provident Fund EPF Interest Rate 1972-73: 6.00%
  • Employee Provident Fund EPF Interest Rate 1971-72: 5.80%
  • Employee Provident Fund EPF Interest Rate 1970-71: 5.70%
  • Employee Provident Fund EPF Interest Rate 1969-70: 5.50%
  • Employee Provident Fund EPF Interest Rate 1968-69: 5.25%
  • Employee Provident Fund EPF Interest Rate 1967-68: 5.00%
  • Employee Provident Fund EPF Interest Rate 1966-67: 4.75%
  • Employee Provident Fund EPF Interest Rate 1965-66: 4.50%
  • Employee Provident Fund EPF Interest Rate 1964-65: 4.25%
  • Employee Provident Fund EPF Interest Rate 1963-64: 4.00%
  • Employee Provident Fund EPF Interest Rate 1962-63: 3.75%
  • Employee Provident Fund EPF Interest Rate 1961-62: 3.75%
  • Employee Provident Fund EPF Interest Rate 1960-61: 3.75%
  • Employee Provident Fund EPF Interest Rate 1959-60: 3.75%
  • Employee Provident Fund EPF Interest Rate 1958-59: 3.75%
  • Employee Provident Fund EPF Interest Rate 1957-58: 3.75%
  • Employee Provident Fund EPF Interest Rate 1956-57: 3.50%
  • Employee Provident Fund EPF Interest Rate 1955-56: 3.50%
  • Employee Provident Fund EPF Interest Rate 1954-55: 3.00%
  • Employee Provident Fund EPF Interest Rate 1953-54: 3.00%
  • Employee Provident Fund EPF Interest Rate 1952-53: 3.00%

That is a very long history of almost 70 years for the Employee Provident Fund Interest Rates in India! Isn’t it?

As you can see, the EPF interest rates were about 3% between 1952-55. Then between 1955-63, the rates moved around 3.5% to 3.75%. Then came a period of almost constant revisions starting from 1963 to the early 1980s to around 8%. And then the lucky EPF depositors between 1980 and 1990 saw EPF rates grow up to an eye-popping 12%. The 12% was the highest ever EPF interest rate and stayed at that for a decade till the year 2000. After that, a gradual decline in PF rates began. From 11% it dropped to 9.5%. And in recent years, it has ranged from 8.50% to 9.00%. There have been small fluctuations in EPF Interest Rates in between but more or less it has been between 8.5% to 9.0%.

The EPF interest rate is revised every year and the notification is available on the official website of EPF India on an annual basis. You can check it here too.

For people who are also curious to know PPF vs EPF interest rates, I suggest you check the historical PPF interest rates as well. You will get an idea about the difference between PPF and EPF when it comes to returns (interest rates).

If you wanted to know about the latest EPF interest rates and wanted to see how the rates have changed in previous years via the history of EPF rates, then I hope you got your information above.

But if you are interested in knowing a little more about various other aspects of Employee Provident Fund in India, like how EPF interest is calculated, taxation of EPF, etc. then stay with me as we take this discussion further.

EPF Contribution via Deduction of Provident Fund from Salary

As soon as you start working in an organization that has EPF, you start contributing 12% of your basic salary (plus dearness allowances, if any) into your EPF account. The employer also matches your contribution and contributes 12%. But out of the 12% Employer’s contribution, only 3.67% (out of 12%) goes to EPF account while the remaining 8.33% goes to your Employee’s Pension Scheme.

Many people like the risk-free returns of 8% plus from EPF account and want to invest more than just 12% in EPF from their salaries. That is possible. An employee can invest more than 12% of his basic salary in EPF and that is called the Voluntary Provident Fund. VPF is not a separate account. It is only a means of investing additional money in the same EPF account. VPF and EPF have same interest rates. You can have a look at historical VPF interest rates if you want.

If you are not so sure about the difference between EPF Vs. VPF, then let me help you. There are two simple things to remember:

  • There is no separate VPF account. All VPF contributions go to EPF account only, as the VPF is directly linked to your EPF account.
  • And VPF contributions get the same rate of return as regular EPF contributions. That is, the interest rate of VPF and EPF are same.

Let’s move further…

How to Calculate Interest on EPF Account Balance (2020-21)? 

 

The interest on EPF account balance is calculated every month but is deposited at the end of the financial year in the account.

To understand the EPF interest calculation better, let me take a small example to understand how the EPF interest calculation works: 

Let’s say your salary (Basic Salary + Dearness Allowance) = Rs 50,000 per month.

Now following are the contributions made by you (employee) and the employer:

  • Employee’s contribution towards EPF = 12% of Rs 50,000 = Rs 6000
  • Employer’s contribution towards EPS = 8.33% of Rs 50,000 = Rs 4165
  • Employer’s contribution towards EPF = 3.67% of Rs 50,000 = Rs 1835

So the Total EPF contribution every month = Rs 6000 + Rs 1835 = Rs 7835.

The EPF interest rate for FY 2018-2019 is 8.65%. Let’s use this latest EPF rate for our example.

As mentioned earlier, interest on EPF is calculated monthly.

So the EPF interest rate applicable per month is = 8.65%/12 = 0.7083%

Assume that you (the employee in this case) joined the job exactly on 1st April 2018. So your and employer’s EPF contributions started for the financial year 2018 – 2019 from the month of April.

Here is how it is calculated:

  • EPF Account Balance (Start of April 2018) = Rs 0
  • EPF contribution (April 2018) = Rs 7835
  • EPF Account Balance (End of April 2018) = Rs 7835
  • Interest on EPF Balance (April 2018) = Nil (No interest in the first month)
  • EPF Account Balance (Start of May 2018) = 7835
  • EPF contribution (May 2018) = Rs 7835
  • EPF Account Balance (End of May 2018) = Rs 15,670
  • Interest on EPF Balance (May 2018) = Rs 110.99 (0.7083% of Rs 15,670)
  • EPF Account Balance (Start of June 2018) = Rs 15,670
  • EPF contribution (June 2018) = Rs 7835
  • EPF Account Balance (End of June 2018) = Rs 23,508
  • Interest on EPF Balance (June 2018) = Rs 166.50 (0.7083% of Rs 15,670)
  • And so on…

Remember, the monthly EPF interest is calculated every month. But it is deposited once only at the end of the financial year (on or after 31st March 2019 in the above example).

Also important to note is that the interest accumulates only on your EPF account balance and it is not applicable on the funds that your EPS balance has. Why? Because the EPS is a pension scheme.

Do Inactive Idle EPF Accounts earn Interest?

As of now, even inactive EPF account which has some balance will continue to earn interest and will be credited with interest earned according to the existing EPF rates.

In 2011, the government of India had decided that EPF accounts which were inactive for more than 3 years (36 months) will not get any interest. But this decision was reversed in 2016. So for now, the interest is earned even on inactive EPF accounts.

Taxation of EPF (Employee Provident Fund): Updated Rules (2020-21)

One of the best parts of EPF is its taxation status.

Provident Fund or EPF comes under E-E-E or Exempt-Exempt-Exempt category of savings products. This means that:

  • 1st E – investments in EPF up to Rs 1.5 lac per year eligible for deduction.
  • 2nd E – Interest earned on EPF is tax exempted.
  • 3rd E – EPF Maturity amount is exempt from tax.

Though EPF continues to be exempted at all three levels (EEE) for now, it’s possible that this might change in future. In an unpopular move by the government in 2016, it was proposed to make a part of the EPF corpus taxable. But due to widespread protest, it was later decided not to do it. So as of now, EPF is fully tax-free and has the EEE status. But you never know when things might change in future. That is one risk which cannot be avoided for time being.

So with a decent interest of more than 8%, EPF does indeed do well on taxation aspects. Your contribution to EPF account is eligible for getting deduction of up to Rs 1.5 lakh under Section 80C of the Income Tax Act. Your employer’s contribution to your EPF is also tax-free. The interest earned on EPF Account balance every year is tax-free. And the best part is, that the money that you accumulate in your EPF Corpus eventually, and which you will eventually withdraw after the mandatory specified period (5 years) or at retirement is also 100% tax-free or exempt fully from income tax.

You can even freely download and use this Excel-based EPF Corpus Calculator (2020) to estimate how much retirement corpus you can accumulate using EPF.

No doubt that it’s a popular product among salaried individuals and why many people want to increase their contributions to EPF account voluntary contributions in form of VPF.

EPF interest after retirement is Taxable

Many people don’t want to withdraw their EPF corpus even at the time of retirement as they are getting a good risk-free rate of return.

And it is for this reason that many employees choose to continue their EPF accounts even after retirement, even though neither they nor their employers make any fresh contributions to the EPF account.

But remember this – EPF account is ideally to accumulate funds only till retirement in a tax-free manner.

But this is not known to many that the interest earned of EPF post-retirement of the employee is taxable.

Yes.

The EPF interest is tax-free before retirement and taxable after retirement.

Why is it so?

Because the tax exemption of EPF interest is available only to employees. But once an individual retires (or leaves), he or she doesn’t remain an employee. Right? So any interest earned on EPF is taxable.

So if you decide now to withdraw EPF balance fully or partially after retirement, then the interest accrued and credited to the EPF account each year would be taxed.

EPF Withdrawal Rules (Updated 2020-21)

When can I withdraw the money in my EPF account?

Ideally, you shouldn’t think about withdrawing money from EPF before retirement. By design, the Employee Provident Fund has been created as a tool to save for your retirement. So if you withdraw money from it every now and then, then how will it be able to accumulate enough money for retirement?

As per the latest EPF Withdrawal rules, you can withdraw money from your EPF account only if you have no job at the time you apply for withdrawal. The waiting period is 2 months. In case you need to withdraw, you will have to fill a declaration with a specified reason for the same.

You can also withdraw partially, from your EPF savings for the following reasons:

  • For education or marriage of self, siblings or children.
  • For immediate medical expenses for self, spouse, children or dependent parents.
  • For housing loan repayment for a house owned by you, spouse, or jointly owned by both you and spouse.

Another factor is that if you have completed 7 years of service, you can withdraw up to 50% of your EPF contributions up to 3 times in your working life.

EPF & UAN (Universal Account Number)

Since we are discussing about EPF interest rates and EPF features, let me tell you briefly about UAN too.

What is UAN?

UAN or Universal Account Number is a 12-digit unique number that is given to every PF account holder or member.

Now UAN, which is a unique number for PF member, can be used to tag and group all the EPF accounts of EPF member across various employers. This is definitely a great facility for all EPF depositors who (before UAN) used to face problems when they wanted to shift their EPF accounts from one employer organization to others. 

EPF is good. But is it enough for Retirement?

If you are a salaried employee who is already making contributions to Employee Provident Fund, then you for all practical purposes, you don’t have a choice do you?

You will continue to invest in EPF.

But remember that EPF is best suited for saving for the critical long term goal of your retirement. So if you are investing in it, then you should not be looking to withdraw from it unnecessarily or every time you change jobs.

If you are planning to save money for short term (less than 5 years or so), then you should not consider EPF for that. Because it would be difficult to withdraw from EPF in the short term due to various restrictions as per PF rules. It’s much better to use debt funds from suitable debt fund categories. Or you can pick the right mutual funds based on the goal time horizon and your risk appetite in mind.

If you were to ask me, then I think that EPF is best suited for saving for long term goals like retirement.

The very idea of establishing Employee Provident Fund or EPF scheme was to help employees save gradually every month and create a corpus by the time of retirement. As you know, a specified (%) sum is deducted from the salary of the employee towards his contributions in the EPF. And the employer also contributes a similar amount (though a part of it goes to EPS in addition to EPF). But EPF alone will not be enough for retirement.

A good retirement plan will have both equity and debt component in it. So debt aspect can definitely be handled via provident fund like EPF. But since retirement for most is several years away, it is very important to have an equity component as well in your retirement planning. And that can be handled by regular SIP in good Equity Mutual Funds.

So if you are looking to plan your retirement properly (and you really should do it because retirement is a nasty problem!), then you should begin as early as possible and start investing in suitable retirement savings portfolio.

If you find it tough to answer questions about retirement like – how much I need to save for retirement, how much retirement corpus is required, how much to invest monthly for retirement, etc., then its better to take professional help to plan your retirement:

Stable Investor Retirement Planning Service

 

Remember, you only get one shot retirement and you don’t get any loans for it either!

And let me talk about what I just asked earlier – is EPF savings enough for retirement?

Many people are under the false impression that just your provident fund EPF savings would be enough for retirement. I am afraid to tell you that it is very likely that your savings in provident fund, i.e. EPF Employee Provident Fund alone will not be enough for your retirement.

So begin your retirement planning today itself.

That completes our detailed discussion which started with the Historical EPF Interest Rates in India (Updated 2020-21) and discussed later about using EPF for your retirement planning needs. The latest EPF interest rate is 8.50% (the Financial year 2019-20) but the interest rates of Employee Provident Fund have changed over the years as you clearly saw in the earlier section of this article about the EPF interest rate history in India. So it’s best that you make an informed decision about planning your retirement using EPF as savings.

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