The Employee Provident Fund (EPF) is among the most important long-term savings tools for salaried employees in India. But despite almost every employer contributing to it, most Indian employees are unclear on how to avail the benefit of the said contribution.
This guide aims to resolve the pertinent issues requiring clarity, including EPF rates for FY26, the manner of calculation of interest on EPF, employer's contribution split between EPF and EPS, timelines for interest credit as well as its taxability.
The annual EPF interest rate is recommended by the Central Board of Trustees (CBT), a statutory body established under Section 5A of the EPF & MP Act, 1952.
For FY25-26, the CBT recommended an 8.25% annual interest rate on EPF accumulations, at its 239th meeting held on 2 March 2026, chaired by the Union Minister for Labour & Employment. This marks the third consecutive year the rate has held at 8.25%. This rate is officially notified by the Government of India, following which interest is credited by EPFO. See the official press release from the Ministry of Labour & Employment.
| Financial Year | EPF Interest Rate |
|---|---|
| 2021-22 | 8.10% |
| 20212-23 | 8.15% |
| 2023-24 | 8.25% |
| 2024-25 | 8.25% |
| 2025-26 | 8.25% |
The EPF interest rate dipped to 8.10% in FY 2021-22, but has been stabilised at the rate of 8.25% for the last three years, making it among the safest investment options.
EPF interest is calculated every month; however, the cumulative interest is credited to the subscriber's account once after year end.
Practically speaking, the interest is calculated for each month on the opening balance of the EPF account. The interest so calculated is accumulated for the entire year and is credited into the account after year end.
Another important aspect of the above calculation is that while calculating the interest for the month (let's say, April), the contribution of that month is not taken into consideration. Rather, it will accrue interest from May and onwards.
After determining the manner of interest computation, let us understand the formula for monthly interest calculation. The CBT recommends the annual EPF interest rate, from which the monthly rate can be determined as follows:
Monthly rate of interest = Annual EPF interest rate ÷ 12
For FY 2025-26: Monthly interest rate = 8.25% ÷ 12 = 0.687% / month
Monthly Interest for FY 2025-26 = Opening Balance × 0.687%
Before working through an illustration, it's worth understanding exactly how the contribution itself is split, since this determines what balance actually earns interest.
The general assumption with respect to the employer's contribution of 12% is that the entire contribution is credited to the EPF account. This isn't accurate. The employer's 12% contribution is divided between the EPS and EPF accounts as follows:
| Contributor | Credited to | Contribution Rate |
|---|---|---|
| Employee | EPF Account | 12% of (Basic + DA) |
| Employer (Component I) | EPS Account | 8.33% of (Basic + DA), subject to a pensionable salary ceiling of INR 15,000/month, i.e. capped at approximately INR 1,250/month |
| Employer (Component II) | EPF Account | 3.67% of (Basic + DA) OR The balance of the employer's 12% contribution, after the EPS deduction |
The 8.33% EPS rate applies only up to a pensionable salary of INR 15,000/month. This means the EPS contribution is capped at approximately INR 1,250/month (8.33% of INR 15,000), no matter how much higher the actual Basic + DA is. Whatever remains of the employer's 12% contribution after this EPS deduction goes to the EPF account.
This is an important distinction: 3.67% (EPF) and 8.33% (EPS) is not a fixed split of the employer's contribution. It only works out to that exact ratio when Basic + DA is at or below the INR 15,000 ceiling. Once salary exceeds that ceiling, the EPS contribution stays fixed in rupee terms at approximately INR 1,250/month, while a progressively larger share of the employer's 12% flows into the EPF account instead, pushing the effective EPF-side percentage above 3.67%.
For example, for an employee with Basic + DA of INR 30,000/month:
This EPS contribution is capped at a pensionable salary of INR 15,000/month, which is why the monthly EPS contribution itself does not exceed INR 1,250, regardless of actual salary.
There is a common misconception around interest on the EPS portion of the employer's contribution that calls for clarification: contributions made to the EPS do not earn any interest and are not reflected in the EPF passbook balance.
Unlike EPF, the EPS corpus is not an interest-bearing accumulation. Instead, contributions are pooled into a pension fund, which is later used to determine the monthly pension payable under the EPS-1995 framework. As a result, EPS contributions do not generate compounding returns in the way EPF balances do.
This explains the difference often observed between the total employer contribution and the amount reflected in the EPF passbook. For instance, with a Basic + DA of INR 30,000, the employer's 12% contribution equals INR 3,600. Of this, only INR 2,350 appears in the EPF balance (as shown above), while the remaining INR 1,250 is allocated to EPS each month.
In case of pre-retirement withdrawal, EPS amounts can be withdrawn through Form 10C. However, the payout includes only the contributed amount (no interest component). Read more on EPS rules and pension eligibility.
Let us assume an employee earning INR 30,000 per month (including basic pay and DA), with a zero opening balance at the start of the financial year. As explained above, the employer's EPS contribution is capped at INR 1,250/month (since Basic + DA exceeds the INR 15,000 pensionable salary ceiling), so the employer's EPF contribution works out to INR 2,350/month, not a flat 3.67%. Combined with the employee's INR 3,600/month (@12%), this brings the total monthly credit to the EPF account to INR 5,950/-.
| Month | Opening Balance (INR) | Contribution (INR) | Interest @ 0.687% (INR) | Closing Balance (INR) |
|---|---|---|---|---|
| April | 0.00 | 5,950.00 | 0.00 | 5,950.00 |
| May | 5,950.00 | 5,950.00 | 40.91 | 11,940.91 |
| June | 11,940.91 | 5,950.00 | 82.09 | 17,973.00 |
| July | 17,973.00 | 5,950.00 | 123.56 | 24,046.56 |
| August | 24,046.56 | 5,950.00 | 165.32 | 30,161.88 |
| September | 30,161.88 | 5,950.00 | 207.36 | 36,319.24 |
| October | 36,319.24 | 5,950.00 | 249.69 | 42,518.93 |
| November | 42,518.93 | 5,950.00 | 292.32 | 48,761.25 |
| December | 48,761.25 | 5,950.00 | 335.23 | 55,046.48 |
| January | 55,046.48 | 5,950.00 | 378.44 | 61,374.92 |
| February | 61,374.92 | 5,950.00 | 421.95 | 67,746.87 |
| March | 67,746.87 | 5,950.00 | 465.76 | 74,162.63 |
| Total | 71,400.00 | 2,762.63 |
Based on the above calculation, the total interest amounts to approximately INR 2,763/- for FY 2025-26, which will be credited to the subscriber's account after year-end.
It is also important to note that after the interest amount is credited to the subscriber's account, the opening balance for FY2026-27 becomes approximately INR 74,162.63.
Based on our foregoing analysis, it is clear that the interest on the PF contribution is credited in one single transaction after the end of the financial year. However, based on past credit patterns, it is noted that while interest calculation is done during the financial year, the credit actually takes place at a considerably later stage.
This delay is attributable to the fact that the CBT only recommends the interest rate, and the actual rate is notified by the Government of India at a later date. Once this rate is officially notified, the interest is credited to the subscriber's account.
For instance, for FY 2024-25, the interest rate was notified on 22nd May 2025, but the interest was credited in July 2025. Similarly, for FY 2023-24, the interest was credited from August to December 2024.
The interest amount of FY 2025-26 is credited in respective subscribers' accounts in July 2026 while the EPF system was backed after a 10 days of shut down. For a full breakdown of the crediting timeline, see our detailed guide on when EPF interest gets credited.
While the interest on PF is accrued at the end of the year, the same may not be credited to the subscriber's account immediately upon year-end. The major reasons for non-reflection of the interest may be due to:
Official Notification: The interest on PF amounts can only be released once the interest rate is officially notified.
Volume of subscribers: Once the rate is notified, EPFO begins the process of disbursement of interest amounts. However, considering the quantum of subscribers associated with the EPFO, the disbursement may be undertaken in parts.
Incomplete KYC / Aadhaar authentication: There may be delays in the credit of interest for subscribers who have not completed their KYC process.
There may be certain accounts that have been considered inactive. These are subjected to modified credit rules and may face delayed credits.
In case the interest amount remains uncredited by August of the following financial year (provided no KYC-related issues persist), a complaint may be filed by the concerned individual through the EPFiGMS portal. The grievance can be filed under the category \"interest not credited,\" supported by a passbook screenshot. It is to be noted that the EPFO is required to respond to the grievance within 30 days.
A common misconception is that an EPF account stops earning interest three years after the last contribution. This is not correct. EPFO's Central Board of Trustees reversed the earlier stoppage rule via an official press release dated 29 March 2016, restoring interest on accounts that had gone without contribution for 36 months and confirming that interest would continue to be credited going forward. A subsequent government notification in July 2017 further clarified that an EPF account is treated as \"inoperative\" only once the member reaches 58 years of age, not at the earlier 3-year mark.
In practical terms, this means:
For individuals who have separated from employment, it is advisable to either transfer the existing EPF balance to a new employer's account or plan withdrawal in good time, factoring in the tax implications of any interest earned during a non-employment period. Read our detailed myth-busting guide: EPF Interest After Leaving Job, Does It Stop After 3 Years?
Before the announcement of the Union Budget 2021, EPF interest was fully exempt from the levy of income tax. However, vide the Union Budget 2021, the following changes have been notified in respect of taxability of EPF interest:
Practically speaking, the above threshold would only be breached where the employee's monthly remuneration exceeds INR 1.73 lacs (basic pay and DA). It is relevant to note that only a small percentage of the Indian workforce falls in this category.
Taxability at the time of withdrawal or retirement: In case the employee has retired or the balance is withdrawn, the entire EPF corpus (i.e., principal amount and interest accumulated) remains tax-free, provided that the employee has completed 5 continuous years of service. Any withdrawals made before completion of such 5 continuous years would attract TDS. See our full guide on when PF withdrawals are taxable.
The EPF interest rate of 8.25% for FY 2025–26 reflects continued stability, making it among India’s most reliable retirement savings options. In this light, it becomes critical for individuals to understand the key aspects around it.
In any case, individuals should check the EPFO passbook from time to time (available at passbook.epfoindia.gov.in) and stay compliant.
In case of any discrepancies or issues, specialised assistance can help streamline the resolution process (from documentation to coordination with the EPFO)
📞 Book a free EPF expert call with FinRight →
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"},"category":"PF Withdrawal","author":"Finright","is_published":true,"is_draft":false,"published_at":"2026-08-06T11:59:50.088Z","is_deleted":false,"summary_id":{"_id":"6a747736feea8610f181d23c","summary":"The EPF interest rate for FY 2025-26 is 8.25% per annum. This rate was recommended by the Central Board of Trustees in March 2026 and becomes applicable once formally notified.
","_id":"6a747736feea8610f181d230"},{"question":"When is EPF interest credited to subscriber accounts?","answer":"Although EPF interest is calculated on a monthly basis, it is credited only once after year end. Based on past timelines, the interest for FY 2025-26 is expected to appear in passbooks mid year. But after the EPF system migration in 2026 it is going to be sooner for 2026 the interest was noticed to be credited in July 2026 itself.
","_id":"6a747736feea8610f181d231"},{"question":"What action should I take if my passbook does not reflect the EPF balance?","answer":"A delay in crediting interest immediately after April is generally within normal timelines. If the interest is still not reflected beyond August of the following year, a grievance can be raised through the EPFiGMS portal (epfigms.gov.in). Common reasons include incomplete KYC, issues with UAN linkage, or inactive account status.
No. This is a common myth. EPF interest continues to accrue on the balance every year until the member turns 58, or until the balance is withdrawn or settled, regardless of whether contributions have stopped. However, interest earned during a period of non-employment is taxed differently (see below) and loses the tax-exempt treatment available to interest earned while in service.
","_id":"6a747736feea8610f181d233"},{"question":"Is EPF interest taxable?","answer":"Interest on employee contributions up to INR 2.5 lakh per year remains tax-free as per the Income Tax Act (INR 5 lakh in the case of government employees). Any interest earned on contributions beyond this limit is subject to tax under the category of \"income from other sources.\" Interest earned on an account during a period when the member is not in active employment is also taxable as \"income from other sources,\" irrespective of this threshold. At the time of retirement or in case of withdrawal, the entire EPF corpus (including the interest amount) remains exempt from the levy of tax, provided that the withdrawer has completed five continuous years of service.
For assistance with EPF withdrawals, transfers, KYC resolution, or account grievances, speak to a FinRight expert today.