Modi govt relents, revises FY16 EPF rate to 8.8%

The government on Friday raised the interest rate payable on employees provident fund (EPF) contributions for the 2015-16 financial year to 8.8 per cent, against the 8.7 per cent approved by the finance ministry last week, in the third roll-back of its decision related to EPF in the past two months.

Labour minister Bandaru Dattatreya announced the decision to raise interest rate on the retirement fund. "I am happy that finance ministry has agreed to 8.8 per cent for 2015-16," he told reporters.

Employee unions had called nationwide protests against the finance ministry's decision to peg interest rate on employee provident funds lower at 8.7 per cent against the 8.8 per cent decided by the retirement fund body EPFO and the 8.75 per cent paid during the previous fiscal.

Last month the government was forced to withdraw the budget proposal to tax a certain portion of withdrawals. Subsequently, it withdrew tighter withdrawal norms.

Several labour unions, including the BJP-affiliated Bharatiya Mazdoor Sangh had protested against the government's decision to reduce the interest rate on EPF.

Finance ministry had earlier claimed that the EPF earnings in 2015-16 was not sufficient to even pay the amount at an interest rate of 8.7 per cent. However, CBT contradicted the claims of the government saying, ''The actual surplus amount for 2015-16 will in fact would be even higher. A surplus corpus will remain even if the interest rate remains 8.8 per cent.''

''If the government had paid back at an interest rate of 8.95 per cent, an amount of Rs91.40 crore would have remained in the surplus corpus. If the rates are 8.8 per cent, the surplus left would Rs673.85 crore. Only a high interest rate such as 9 per cent would have had resulted in a deficit of around Rs 102.5 crores,'' said Brajesh Upadhyay, EPFO member and general secretary of Bharatiya Mazdoor Sangh.

Initially, the CBT had demanded an interest rate of 8.95 per cent. However, they have compromised their stand and have agreed for 8.8, he pointed out.