NewDelhi March 5 : The Employees’ Provident Fund Organisation (EPFO), the state-run retirement fund manager, on Thursday announced an 8.5% interest on provident fund deposits for 2020-21, keeping a widely watched working-class metric of savings unchanged from last year.<\/p>\n
The decision to not lower interest rates is a welcome move for India’s nearly 50 million EPFO subscribers, for whom a provident fund is often the only mode to save up for retirement.<\/p>\n
‘The EPFO has decided it will pay an 8.5% interest on deposits based on the current position of earnings and deposits of the organisation,’ Virjesh Upadhyay, a board member of the EPFO, told HT soon after a meeting of the EPFO’s central board of trustees held in Srinagar Thursday.<\/p>\n
According to prevailing EPFO norms, at least 12% of an employee’s basic salary is compulsorily deducted to be saved in provident fund, while an employer co-contributes another 12%.<\/p>\n
Subscribers will be paid an 8.5% interest during 2020-21 on these deposits.<\/p>\n
Finance minister Nirmala Sitharaman, in the Union Budget presented in February, had announced that interest on employee contributions to provident fund of over \u20b92.5 lakh per annum would be taxed, starting April 1. She had said that the tax-exempted deposit limit was set at \u20b92.5 lakh.<\/p>\n
In March last year, the retirement fund manager had disappointed subscribers by a downward revision of interest rates on PF deposits to 8.5%, a seven-year low.<\/p>\n
‘Earnings of the EPFO are facing different situations in the financial markets. The EPFO’s earnings for 2020-21 are pegged at \u20b965,000 crore and it will be comfortably able to pay 8.5% this year too,’ Upadhyay said.<\/p>\n
The Covid-19 pandemic had pressured the EPFO’s earnings and delayed payments for 2019-20. This was paid in two instalments, deriving from two sources of the EPFO’s investments: 8.15% from debt investments and 0.35% from its equity portfolio.<\/p>\n
Pressured earnings have forced the retirement fund manager to lower the interest rates payable to depositors in some preceding years. For instance, during 2017-18, the organisation had paid an 8.55% interest rate. In 2016-17, the interest rate was higher at 8.65%.<\/p>\n
According to the labour ministry’s latest statement of payroll data, the number of new subscribers of the EPFO, which also gives an estimate of formal-sector employment growth, rose by 24% to 1.254 million in December 2020 compared to a year before.<\/p>\n
Previously, interest accrued from an employee’s provident fund (EPF) was exempt from tax. ‘The decision of the Union Budget to fix the tax-exempt limit on EPFO deposits from the employee’s share and impose a tax above deposits of \u20b92.5 lakh is aimed more at curbing disproportionately high voluntary savings by high-income individuals,’ said Bikram Dhamija, a partner at Compass Tax PLC.<\/p>\n