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Uncertainty ends as govt notifies 8.65% interest rate for EPF subscribers
- The 8.65% rate is a 10-basis-point increase from the 8.55% paid in 2017-18, but the same as the rate paid in 2016-17
- The notification will lead to the crediting of ₹54,000 crore into provident fund accounts
New Delhi: Ending prolonged uncertainty for millions of salaried employees, the Union government on Tuesday notified an interest rate of 8.65% for Employees’ Provident Fund Organisation (EPFO) subscribers for 2018-19, which will lead to the crediting of ₹54,000 crore into provident fund accounts.
The interest rate of 8.65% is a 10-basis-point increase from the 8.55% paid in 2017-18. It is the same as in 2016-17, but less than the 8.8% paid in the previous years. One basis point is one-hundredth of a percentage point.
EPFO’s Central Board of Trustees had approved this rate on 21 February, but it was not notified, pending clearance from the finance ministry. In June, Reuters reported that the ministry had asked EPFO to reduce this rate.
“I am happy to announce that for 2018-19, labour ministry has approved the 8.65% interest rate as suggested by the Central Board of Trustees on 21 February. Our ministry has notified it now and, with this, ₹54,000 crore will be paid as interest rate for 2018-19,” labour minister Santosh Gangwar said in a statement.
The retirement savings body had previously said it was awaiting formal approval from the finance ministry.
There were three points of contention related to the new interest rate, two government officials said, requesting anonymity. One, an 8.65% rate in a falling rate cycle was too high; two, such a payout may not give EPFO enough room to manage its funds better next year; and three, EPFO’s ability to match the interest rate in 2019-20, as subscribers’ expectation will remain high, said one of the two officials cited earlier.
The second official said these questions were clarified before getting the finance ministry’s approval: First, EPFO payouts depend on its earnings and its earnings were good enough to pay at 8.65%. Second, the central board will take a call on the 2019-20 payout depending on actual income and income projection towards the end of 2019-20. Third, EPFO still has surplus after an 8.65% payout and accommodating its expenses.
To be sure, after an 8.65% payout EPFO will be left with a surplus of ₹151 crore in 2018-19, much below the surplus of ₹586 crore in 2017-18. EPFO manages a corpus of over ₹11 trillion and has more than 160 million accounts.
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First Published:24 Sep 2019, 06:14 PM IST
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