On 28th February, the Employees' Provident Fund Organization (EPFO) announced that the interest rate for PF accounts for the financial year 2024-25 will remain at 8.25%. The decision was taken in a meeting of the Central Board of Trustees (CBT). Earlier, the interest rate for the financial year 2023-24 was increased from 8.15% to 8.25%, while in 2022-23, the rate was raised from 8.10% to 8.15%.
At the 8.25% interest rate, if you have ₹1,00,000 in your EPF account, you will earn ₹8,250 as interest in a year. In the financial year 2021-22, the interest rate had been reduced to 8.10%, the lowest in 43 years. Around 70 million employees in India are covered under the EPF scheme.
How PF Contributions Work
Under the EPFO Act, 12% of an employee's basic salary plus Dearness Allowance (DA) is contributed to the PF account. The employer also contributes 12% of the employee’s basic salary plus DA. Of this, 3.67% goes to the PF account, and the remaining 8.33% is directed towards the pension scheme. The employee’s entire 12% contribution goes to the PF account.
For example, if your EPF balance is ₹5,00,000 by 1st April 2024 (opening balance for the financial year 2024-25), you will earn ₹41,250 as interest at the rate of 8.25%.
Historical Trends of PF Interest Rates
The interest rate on PF has evolved over the years. In 1952, the rate was just 3%, but it gradually increased. In 1972, the interest rate crossed 6% for the first time, and by 1984, it exceeded 10%. The most favorable period for PF account holders was between 1989 and 1999 when the interest rate was 12%. Afterward, the rate started to decrease and has remained below 10% since 1999. For the past seven years, it has remained at 8.50% or lower.
How the Interest Rate is Decided
The interest rate decision for PF is made at the end of the financial year. First, the Finance, Investment, and Audit Committee meets to review the funds collected during the year. After that, the CBT meeting takes place, and the interest rate is approved by the Finance Ministry before being implemented.