EPFO fixes 8.5% interest on deposits for fiscal year 2021
The decision not to lower interest rates is a welcome move for 50 million active EPFO subscribers, for whom PF is often the only mode to save up
NEW DELHI: Employees’ Provident Fund Organisation (EPFO), the state-run retirement fund manager, on Thursday announced an 8.5% interest on provident fund deposits for 2020-21, keeping a widely watched working-class metric of savings unchanged from last year.
The decision not to lower interest rates is a welcome move for India’s nearly 50 million active EPFO subscribers, for whom provident fund is often the only mode to save up for retirement.
“The EPFO has decided it will pay an 8.5% interest on deposits based on the current position of earnings and deposits of the organisation,” Virjesh Upadhyay, a board member of the EPFO, told HT soon after the 228th meeting of the EPFO’S central board of trustees (CBT) held in Srinagar on Thursday.
According to prevailing EPFO norms, at least 12% of an employee’s basic salary is compulsorily deducted to be saved in provident fund, while an employer co-contributes another 12%. Subscribers will be paid an 8.5% interest during 2020-21 on these deposits.
As per the practice, the CBT decision on interest rate would be send to the finance ministry for concurrence. After getting the finance ministry’s nod, the 8.5% rate of interest for this fiscal would be credited into the EPFO subscribers’ accounts.
The interest rate would be officially notified in the government gazette following which the EPFO would credit the rate of interest into the subscribers’ accounts, a statement by the Union labour ministry said.
Finance minister Nirmala
Sitharaman, in the Union Budget presented in February, had announced that interest on employee contributions to provident fund of over ₹2.5 lakh per annum would be taxed, starting April 1. She had said that the taxexempted deposit limit was set at ₹2.5 lakh.
In March last year, the retirement fund manager had disappointed subscribers by a downward revision of interest rates on PF deposits to 8.5%, a seven-year low.
“Earnings of the EPFO are facing different situations in the financial markets. The EPFO’S earnings for 2020-21 are pegged at ₹65,000 crore and it will be comfortably able to pay 8.5% this year too,” Upadhyay said.
KE Raghunathan, an EPFO trustee, told PTI that the EPFO would have a surplus of around ₹300 crore on maintaining 8.5% rate of interest for the current fiscal at par with 2019-20.
The Covid-19 pandemic had pressured the EPFO’S earnings and delayed payments for 2019-20. This was paid in two instalments, deriving from two sources of the EPFO’S investments: 8.15% from debt investments and 0.35% from equity portfolio.
Pressured earnings have forced the retirement fund manager to revise down the interest rates payable to depositors in some preceding years. For instance, during 2017-18, the organisation had paid an 8.55% interest rate. In 2016-17, the interest rate was higher at 8.65%.
According to the labour ministry’s latest statement of payroll data, net new subscribers of the EPFO, which also gives an estimate of formal-sector employment growth, rose by 24% to 1.25 million in December 2020 compared to a year ago.