EPFO fixes 8.65% interest rate on provident fund deposits for FY17
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New Delhi: The Employees’ Provident Fund Organisation (EPFO) on Monday lowered the interest rate on provident fund deposits to 8.65% for 2016-17, slightly lower than the 8.80% it paid in the previous year.
The 15 basis point cut, which sets the backdrop for another round of rate cuts by the Reserve Bank of India, triggered a political firestorm, with the Congress-led opposition accusing the government of harming the common man.
“Demonetization on one hand and attack on EPF on the other, the government is hurting the common man,” Congress chief spokesperson Randeep Surjewala told reporters.
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EPFO, which manages a retirement corpus of over Rs8.5 trillion and functions under the Union labour ministry, said the rate was fixed keeping in mind the interest income receivable this year and the surplus of Rs410 crore from last year.
In 2015-16, EPFO’s income included a surplus from the previous year of Rs1,604 crore. The Press Trust of India reported, quoting EPFO income projections, that retaining 8.8% rate of interest for the current fiscal year would have left it with a deficit of Rs383 crore.
Experts said that despite the rate cut, EPF investments are still very attractive compared to other financial instruments.
Amarpal Chadha, a partner at EY, said, “Given that this is an assured return and non-taxable if withdrawn after a continuous service of five years, this still continues to be an attractive option for employees to save.”
Rakesh Bhargava, director at tax information provider Taxmann,said the move could hit voluntary contributions by employees.
EPFO sets the interest rate as per the income generated from its investments every year. In 2013-14 and 2014-15, the organization kept interest rates pegged at 8.75% after raising it from 8.5% in 2012-13. Over the years, the rate has fallen. In 2010-11 it was 9.5%.
All India Trade Union Conference national secretary D.L. Sachdeva, who attended the meeting of EPFO’s apex policymaking body—the Central Board of Trustees (CBT)—in Bengaluru, said, “The appreciation of investments in equity instruments in 2015-16 has not been taken into account while fixing the interest rate for this financial year.”
Last year, the pension manager invested over Rs7,000 crore, or 5% of the annual incremental corpus, in stocks after the finance ministry persuaded it to do so. It earned a 13% return on this. However, the appreciation in equity investments is not included as income since it will only accrue once the stock is sold.