EPF interest is calculated annually on the opening balance plus that year's total employee and employer contributions, using the interest rate declared by EPFO for the year (currently around 8.15%). The interest is credited to the account and compounds for subsequent years.

Employees typically contribute 12% of their basic salary plus dearness allowance to EPF. The employer also contributes 12%, but only 3.67% goes into the EPF account — the remaining 8.33% is diverted to the Employee Pension Scheme (EPS).

Partial withdrawals are allowed for specific purposes such as home purchase, medical emergencies, education, or marriage, subject to EPFO rules on minimum service period. Full withdrawal is generally permitted after two months of unemployment.

EPF interest is tax-free as long as the employee's own contribution does not exceed ₹2.5 lakh per year. Interest earned on contributions above this threshold is taxable in the hands of the employee.

Since EPF interest compounds annually on an ever-growing balance, staying invested for more years has a disproportionately large effect on the final corpus — the last few years of a long career often add more to the balance than the first several years combined.