Finally the luck of EPFO members will bloom soon. Yes you’ve heard it right. Actually The government has some positive information for Employees’ Provident Fund (EPF) members. It has implemented significant alterations in how interest is computed on EPF savings. This will aid the members. Under the updated regulations, interest will be calculated on the balance accrued not just until the end of the previous month, but also up until the most recent settlement date. By making this change, members will receive the complete value of the savings upon withdrawing the funds.
Modifications in interest computation
At present, claims resolved by the 24th are computed solely until the conclusion of the prior month. This indicates that members have a diminished interest. Following the revision of the rules, members requesting withdrawals during the month will also accrue interest for the extra days.
For instance, in the case of a member who has a balance of Rs. If 1 crore is withdrawn on the 20th of a month, he will now receive an extra interest of Rs. 44,355 (calculated using an interest rate of 8.25% for FY24). In the same way, a member possessing Rs. 2 crore will receive an extra interest of Rs. 88,710. These modifications will take effect once the government releases a gazette notification.
The updated regulations
This will pertain to complete withdrawals of EPF savings, such as retiring at 55, retiring because of disability, working overseas, or closing the account after two months of being unemployed. Nonetheless, these will not be applicable to partial withdrawals intended for reasons like education, marriage, or home construction.
1. Speeding Up Claim Processing
Right now, claims aren’t processed from the 25th until the month wraps up, which leads to some delays. With the new changes, claims will be handled all month long. This means shorter wait times and quicker resolutions for member claims.
Interest on Dormant Accounts:
If you don’t withdraw your balance after retirement, your EPF account stays active for three years, earning interest at the current rate. After those three years, it becomes inactive, and the interest stops. Just a heads up, you’ll need to pay tax on any interest earned post-retirement.
EPS Contributions and Pension
Employers put in 8.33% (up to Rs. 1,250 a month) of an employee’s basic salary into the EPS.
While EPS doesn’t earn interest, you can qualify for a pension after making contributions for 10 years straight.
Pension Calculation Formula
Pension = (Years contributed × Average monthly salary of the last 5 years) / 70
The highest monthly pension you can get is Rs. 7,500, while the lowest is Rs. 1,000.
Beneficial Tax Aspects of EPF
Contributions made to EPF qualify for tax exemption up to Rs 1.5 lakh under Section 80C of the previous tax system. If workers wish to contribute beyond the mandatory 12%, they can choose to participate in the Voluntary Provident Fund (VPF). It provides interest similar to EPF and is exempt from taxes. If the yearly earnings from contributions are more than Rs 2.5 lakh, they are liable to income tax. If there is no contribution from the employer, this limit goes up to Rs 5 lakh.
