EPFO retains 8.5% interest rate on EPF deposits for 2020-21

The decision assumes significance for more than five crore active subscribers of EPFO as there were speculations that interest rate will be lowered from 8.5 per cent in view of more withdrawals and lesser contribution by members amid the coronavirus pandemic.

New Delhi: Retirement fund body EPFO has decided to retain 8.5 per cent interest rate on provident fund deposits for the current financial year.

“The Central Board recommended 8.50% annual rate of interest to be credited on EPF accumulations in members’ accounts for the financial year 2020-21,” the Employees’ Provident Fund Organisation (EPFO) said in a statement.

The decision was taken at an apex level meeting of the EPFO held in Srinagar on Thursday. The meeting was chaired by the Union Labour Minister Santosh Kumar Gangwar.

The meeting got the attention of more than five crore active subscribers of EPFO as there were speculations that interest rate will be lowered from 8.5 per cent in view of more withdrawals and lesser contribution by members amid the coronavirus pandemic.

Dismissing the speculations, EPFO has decided to continue with the existing interest rate.

“Since FY 2014 EPFO has consistently generated returns not less than 8.50 percent. A high EPF interest rate along with compounding, makes a significant difference to gains of subscribers,” the statement added.

In March last year, the interest rate was slashed to a seven-year low of 8.5 per cent for 2019-20 from 8.65 per cent in 2018-19.

The interest rate was higher at 8.8 per cent in 2015-16. It was subsequently cut to 8.65 per cent in 2016-17 and 8.55 per cent in 2017-18. It got an increment of 0.10 per cent in 2018-19.

EPFO has started investing the funds in the equity market since 2015-16.

“EPFO prudently started investing in equity through exchange traded funds based on the NSE 50 and BSE 30 indices,” said the statement, adding, “The investment in equity assets started from 5 percent for FY 2015 and subsequently gone up to 15 percent of the incremental portfolio,”

Budget proposals

Presenting the Union Budget 2021-22 last February, the Finance Minister Nirmala Sitharaman announced that contributions to provident fund over Rs 2.5 lakh per annum would be taxed from next April.

“In order to rationalise tax exemption for the income earned by high income employees, it is proposed to restrict tax exemption for the interest income earned on the employees’ contribution to various provident funds to the annual contribution of Rs 2.5 lakh,” said the Finance Minister.

Allying the fears on its impact, the Finance Minister added that those earning less than Rs 2 lakh per month will not be affected by the Budget proposal.

At present, an employee and the employer contribute 12 per cent each of basic salary and dearness allowance to the provident fund.

(With PTI Inputs)