The EPFO has INCREASED the EPF interest rate (Employees Provident Fund). The rates have been increased to 8.15% for FY2022-23. The rates earlier were 8.1% in FY 2021-22.
So the answer to your questions about What is current EPF interest rate? is 8.15%.
Once the new EPF interest rate is officially notified in the government gazette, EPFO is expected to credit the interest amount into the subscribers’ accounts.
For a historical perspective and how EPF interest rates have changed over the years, do check historical EPF interest rates (since 1952-53).
When compared to other debt instruments, EPF is the one with a higher interest rate. And this high-interest rate of EPF along with the whole process of compounding that takes place for EPF accounts (as these are fairly illiquid) makes them a solid part of everyone’s retirement portfolio.
EPFO is known to follow a conservative approach towards investment as the prime goal is the safety/preservation of the principal and also because this actually invests the common man’s retirement savings. But nevertheless, the approach is gradually accommodating more equity to enhance returns as interest rates fall across the board.
In the last few years, EPFO has started investing in equity through Nifty50 and Sensex-based ETFs. What started as a 5% investment in equity in 2015-16 has gradually gone up slowly to 15% of the incremental portfolio being invested.
By the way, EPF is not exactly an Exempt-Exempt-Exempt investment option now. At least not for those who contribute above Rs 2.5 lakh a year. The government has announced that from 2021 onwards, interest on EPF contributions above Rs 2.5 lakh will be taxed.
Many HNIs were using EPF to get crores in tax-free interest income (read Top 20 HNIs have Rs 825 crore in EPF!). So the government decided to curb this practice by introducing taxation of interest above a given threshold of annual contributions.
By the way, do you know how EPF interest is calculated?
While the EPF contribution is (taken from salary and) deposited every month, the interest is calculated only once at the end of the year. EPFO calculates the monthly closing balance every month and then the interest is calculated. The interest is calculated by multiplying the monthly balance with the applicable EPF interest rates.
The EPF is a mandatory contribution for salaried employees. The employer is also required to make the matching contribution to the EPF account. While an employee has to make 12% of his salary as a contribution to the EPF account on monthly basis, the employer’s contribution gets divided between EPF (3.67%) and the remaining 8.33% towards the Employees Pension Scheme (EPS). Recently in 2023, the EPFO gave the option to EPF subscribers to opt for Higher EPS pension by contributing a lumpsum from EPF to EPS.
Further related readings:
- Is EPF alone enough for retirement?
- Should you still invest more than Rs 2.5 lakh in EPF after new taxation?
- EPF Maturity Corpus Calculator (Excel Free Download)
- VPF interest rate history
- VPF Vs PPF
- PPF Interest Rate History
- How PPF interest is calculated?
- In this ‘No Pension’ era, do not underestimate Retirement Planning
Though the EPF rates have been increased to 8.15%, it is still quite high compared to other available options and the current rate scenario. The sovereign-backed assured fixed guaranteed returns of EPF (along with favourable tax treatment) make it an attractive choice for investors and also doubles up as a solid tool for social security and retirement planning in India (2023).