EPF rate cut to 8.65%: Setback for employees but rate still better than most bank FDs

Retirement fund body EPFO on Monday decided to lower the interest on EPF deposits for the current fiscal to 8.65 percent, from 8.8 percent provided in 2015-16, for its over four crore subscribers.

"The Employees Provident Fund Organisation's apex decision making body, the Central Board of Trustees (CBT), has taken a decision to lower the interest rate to 8.65 percent for the current fiscal from 8.8 percent in 2015-16," Indian National Trade Union Congress Vice-President Ashok Singh said after the meeting at Bengaluru.

 EPF rate cut to 8.65%: Setback for employees but rate still better than most bank FDs

Representational image. AFP

Bharatiya Mazdoor Sangh General Secretary Virjesh Upadhyay also said that 8.65 percent rate of interest is fixed on EPF deposits for 2016-17.

As per the EPFO income projections, retaining 8.8 percent rate of interest for the current fiscal would have left a deficit of Rs 383 crore.

However, the body could have utilised about Rs 409 crore surplus with it, which accrued after providing 8.8 percent rate of interest for 2015-16, to retain the same rate of return for the current fiscal.

A surplus of about Rs 69.34 crore was stipulated if interest rate was to be lowered to 8.7 percent.

EPFO has projected income of Rs 39,084 crore for the current fiscal.

As per sources, the Finance Ministry has been asking the Labour Ministry to align the EPF interest rate with other small saving schemes of the government like Public Provident Fund (PPF).

In September, the government reduced interest rates on small savings schemes marginally by 0.1 percent for the October-December quarter of 2016-17, which resulted in lower returns on PPF, Kisan Vikas Patra, Sukanya Samriddhi Account, among others.

The Labour Ministry however wanted to retain 8.8 percent for the current fiscal as well, a source said.

What experts are saying

Rakesh Bhargava, Director, Taxmann, a leading publisher of tax and corporate laws in India, feels reduction in rate of interest is a set-back for 40 million employees.

"Yet the rate of interest is very attractive in comparison to rate of interest on fixed deposit, NSC, government bonds, public provident funds, etc. Provident fund is meant for rainy days and to support an employee after his retirement. Such reduction in rate of interest may impact voluntary contribution by employees in their provident fund,” he said.

Suresh Sadagopan, a certified financial planner based in Mumbai, concurs saying as compared to what is happening in the market the 15 basis point decrease is small.

"And even after the rate cut, 8.65 percent is good and on top of that it is also tax free. Even most bank FDs are offering lower rates than this for various tenures," he says.

EPF currently operates on EEE model, which means investment, earning, and withdrawal all are exempt from tax.

With PTI

Updated Date: Dec 20, 2016 11:23:36 IST