Employees Provident Fund may fix interest lower at 8.6% for 2016-17
12 September 2016
The Employees Provident Fund Organisation (EPFO) has declared a lower rate of interest of 8.6 per cent for the current financial year against the 8.8 per cent paid in the previous fiscal, ie, 2015-16
The finance ministry had ratified payment of 8.7 per cent interest for the previous financial year.
The latest move by the EPFO will affect over 40 million subscribers who will lose thousands of rupees in terms of interest on their PF deposits if the labour ministry decides to oblige the finance ministry.
Finance ministry has been nudging labour ministry to keep interest rate on EPF low in order to be in line with other small savings schemes administered by it. Reports also said the two ministries have a broad consensus to fix 8.6 per cent interest for this fiscal.
However, the EPFO is yet to work out the income projection for the current fiscal foe the Central Board of Trustees (CBT), EPFO's apex decision making body, to take a call on interest rate.
The CBT fixes the rate of interest for a financial year and it is approved by its advisory body Finance, Audit and Investment Committee (FAIC).
Once CBT fixes the interest rate, it has to get the concurrence of the finance ministry on the basis of income projections for the year. Once the finance ministry ratifies it, the interest rate is notified and credited into the accounts of subscribers.
Finance ministry's concurrence is required to ensure that EPFO's payout does not exceed its income and the body has enough funds for the payout.
It may be noted that the EPFO also does not stretch its finances, which is evident from the fact that in the last fiscal when EPFO was in a position to provide 8.95 per cent interest on the basis of its income projection, which would still have left a surplus of Rs100 crore, it paid only 8.8 per cent interest.
The 8.8 per cent interest rate too was a compromise arrived at by the two ministries in the wake of stiff opposition from all corners.
The EPFO had provided 8.75 per cent interest in 2013-14 and 2014-15, against the 8.5 per cent paid in 2012-13 and 8.25 per cent paid in 2011-12.
Finance ministry is seeking parity in interest for its small savings schemes like Public Provident Fund (PPF) in view of depleting yield of government securities and other saving instruments in the market.
Trade unions, however, have been of consistent in their view that the finance ministry should not interfere in the decision of CBT as EPF is workers' money and the return they get is part of income earned on investments of their funds.