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Business News/ Politics / Policy/  Increase in EPF interest rate unlikely this year
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Increase in EPF interest rate unlikely this year

A further increase in interest rates from 8.75% may affect health of retirement fund manager, say officials

EPFO manages a corpus of more than `6 trillion. The annual provident fund accrual rose 16% in 2013-14 from the previous year. More than 800,000 establishments are under the purview of the retirement fund manager. Photo: MintPremium
EPFO manages a corpus of more than `6 trillion. The annual provident fund accrual rose 16% in 2013-14 from the previous year. More than 800,000 establishments are under the purview of the retirement fund manager. Photo: Mint

Salaried people are unlikely to see an increase over the 8.75% annual interest earned in the employees’ provident fund as the government is of the view that any further hike will affect the health of the retirement fund manager, two officials aware of the development said.

The Employees’ Provident Fund Organisation (EPFO), which is controlled by the labour ministry, already offers a higher annual rate of return, compared with the public provident fund (8.7%) and national savings certificates (8.5%).

“The interest rate is unlikely to change on the positive side," one of the officials said. “Hopefully, we may manage to just reach there (8.75%)." Both officials declined to be named.

EPFO is set to announce the rate of interest for 2014-15 later this month.

The ministry has put the matter on the agenda of a meeting of the central board of trustees (CBT) of EPFO scheduled on 26 August.

“Though it’s in the agenda of the CBT meeting, we have not yet circulated the details of the (interest rate) item," said the second official. “Consultations are going on whether 8.75% can be maintained."

There is something “fishy" about the forthcoming meeting as EPFO has not circulated any note on the interest rate, said D.L. Sachdeva, a workers’ representative in CBT. “We want 9.5% interest rate to provident fund subscribers, that, too, without investing in equities," he said.

CBT is a tripartite body comprising government, employers’ representatives and employees’ representatives.

100 invested in the year 2005 has become 193 at the EPF rate of interest. But because of inflation, its value is reduced to only 97," according to an internal note of the labour ministry.

Mint has reviewed a copy of the note, which underlines the fact that the retirement body is slow in decision-making as all policy and investment decisions are made by CBT, which meets one to three times a year and, thus, fails to take the benefit of “periodic advantages".

Although employees’ representatives have been demanding a better interest rate to beat inflation, the organization believes that the outgo should be in line with its earnings, said the second official, adding that increasing the interest rate will cost the government and it may not be feasible at a time when the finance minister has set a target of containing the fiscal deficit at 4.1% of gross domestic product (GDP), compared with 4.6% in the year ended 31 March.

Besides, although the government has increased the mandatory ceiling for provident fund deductions for all employees earning up to 15,000 per month from 6,500, it is yet to be notified, thus reducing the flow of more funds for the entire year.

The organization is trying to maximize returns and the fund manager will pay less service tax to State Bank of India resulting in a saving of 100 crore per year due to technology upgradations, said the first official cited above.

Instead of giving 3 to India’s largest lender for collecting 1,000 from employees, the amount has been reduced to 1.8 in case of internet banking transactions and 2.4 for physical transactions, according to the ministry’s internal note.

Central provident fund commissioner K.K. Jalan confirmed the development, saying technology adoption and electronic submission of deposits will continue to give the fund manager financial benefits.

EPFO manages a corpus of more than 6 trillion. The annual provident fund accrual rose 16% in 2013-14 from the previous year. More than 800,000 establishments are under the purview of the retirement fund manager. Though EPFO has 120 million accounts, only 41.7 million are active subscribers, or those who are contributing regularly to the retirement corpus.

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Published: 12 Aug 2014, 12:40 AM IST
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