EPFO: Have you withdrawn money from your PF account prematurely? Here's how the interest you receive will now be calculated..

The Employees' Provident Fund (EPF) is a long-term savings scheme where both the employee and the employer contribute every month. The government pays a fixed interest rate on this deposit every year. However, sometimes people withdraw money from their PF account mid-year due to necessity. In such cases, the biggest question in many people's minds is: will the interest rate decrease? Will interest be paid for the entire year? Or does the interest stop from the date of withdrawal?

How is the interest calculated?
In reality, the EPFO's interest calculation is quite simple; it just needs to be understood. Interest in EPF is declared annually, but the calculation is done monthly. The EPFO ​​declares the interest rate at the end of each financial year. However, the calculation is based on the closing balance of each month. Currently, the interest rate for EPFO ​​is 8.25%. This means that the interest for each month is calculated on the balance available on the last day of that month. When the year is complete, the interest for all the months is added together and credited to the account.

How is interest calculated if money is withdrawn mid-year?
If you have withdrawn money from your PF account in any month, the EPFO ​​starts calculating interest on your new balance from that month onwards. For example, if you withdrew money in September, the interest for the subsequent months will be calculated on the closing balance of September. This means that you will receive full interest for all the months before the withdrawal, and the interest for the remaining months will be calculated on the reduced balance. Therefore, the interest does not stop on the date of withdrawal; the balance simply decreases, forming a new base for future calculations. So, withdrawing money from your PF account mid-year does not stop the interest; it simply starts a new calculation based on the remaining amount in your account.

Let's understand with a simple example:
Suppose you had ₹2 lakh in your PF account until April, and you withdrew ₹50,000 in August. The interest calculation will then be as follows: interest will be calculated on ₹2 lakh from April to July, and at the end of August, the balance will be ₹1.5 lakh, and the interest for the subsequent months will be calculated on this amount. In this way, your interest rate does not decrease; only the total amount of interest earned might be slightly less due to the reduced balance.

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