Is it necessary to look at my GPF balance sheet?
Have you ever tried to know the underlying calculations involved in creating the GPF(General Provident Fund) balance sheet which is handed over to you at the end of a financial year. It is very important to know the basic calculations involved because in the domain of compound interest, a petty looking error in the balance sheet, may introduce a huge difference in the final amount that you get at the time of retirement or at the end of any stipulated period. There is generally a counterfoil attached with the GPF balance sheet which is to be filled in and submitted if the employee finds any error in the interest calculation for a particular financial year. So as soon as you get your GPF balance sheet this year do your home work and inform your accounts officer if you find even a minor mistake. Though these calculations have been shown in respect of GPF they can be used for other aspects of similar nature.
Get into groove with the GPF balance sheet calculations:
Let us try to understand the calculation in detail:
• GPF interest is generally calculated for a period- March of current calendar year to the February of the next calendar year.
• There are two interest earning components of GPF:
(i) Your total GPF balance before calculating current year interest, and
(ii) Your monthly contributions for the current financial year.
• So, your net GPF balance at the end of the year, i.e. in February will be the sum of
(i) Your net GPF balance at the start of calculations
(ii) Interest earned by (i)
(iii) Your total contribution for the current financial year, in the form of monthly instalments,
(iv) Interest earned by (iii)
• Suppose the GPF interest rate is 8% p.a. for the year in question.
Since this rate of interest is annual, we have to divide it by 12 to know the interest rate per month, i.e. GPF interest rate p.m. = (8÷12) = 0.667%(approx.)
• Now for the month of March only the interest rate will be 8%.
But for successive months the interest rate for the current year contributions will decrease by the fraction of 0.667, i.e. for March it is 8%, for April it is (8-0.667=7.333%), for May 6.666% and so on.
An example of net GPF balance calculation
As an example let us consider:
• An employee's net GPF balance in last February was Rs 4,80,000/-
• Suppose his monthly contribution for GPF account is Rs 7000/-
• Therefore, Interest earned by his monthly contributions are as follows:
March ( 8% of Rs 7000/- = Rs 560/-), April (7.333% of Rs 7000/-= Rs 513/-), May (6.666% of Rs 7000/-= Rs 467/-), June (5.999% of Rs 7000/-= Rs 420/-)…………..February (0.667% of Rs 7000/- = Rs 46/-)
Aggregate of these contributions= Rs 3638/-
• Interest earned by his net balance of the last year= 8% of Rs 4,80,000/-= Rs 38,400/-
• His total contributions for the current year= 12x Rs 7000/- = Rs 84,000/-
• Including all four components, total GPF balance at the end of the year:
Net balance in last February= Rs 4,80,000/-
Interest earned by this= Rs 38,400/-
His total contributions in the current year= Rs 84,000/-
Interest earned by this = Rs 3,638/-
Total balance at the end of current financial period
= Rs (4,80,000+38,400+84,000+3,638)
= Rs 6,06,038/-