NEW DELHI : In a decision ahead of Diwali, the Finance Ministry has approved 8.5 per cent rate of interest on provident funds for 2020-21, enabling the Employeesí Provident Fund Organisation (EPFO) to credit interest in the accounts of beneficiaries. With the ministryís approval on Friday, the labour ministry plans to notify the rate at the earliest, a senior government official said told The Indian Express. The EPFO has an active subscriber base of more than 6.7 crore and 6.9 lakh contributing establishments. The interest rate is understood to have been decided on an income of Rs 70,300 crore from sale of debt and equity investments, leaving a surplus of around Rs 300 crore with the EPFO. The Central Board of Trustees (CBT) of the retirement fund body had in March recommended that the interest rate for the financial year 2020-21 be retained at 8.5 per cent. The recommendation was made keeping the returns on equity investments.
For FY2021, the EPFO had decided to liquidate investment in equity and the interest rate recommended was a result of combined income from interest received from debt investment as well as income realised from equity investment. The process of ratifying the interest rate was expedited to benefit people ahead of the festival season. The EPFO had retained the interest rate on PF deposits for 2020-21 at same rate as in 2019-20 despite the substantial withdrawals in the wake of Covidís impact of peopleís financial resources. The retirement fund body saw high withdrawals and lower contributions in the aftermath of the Covid-19 pandemic. Until December 31, the EPFO had settled 56.79 lakh claims worth Rs 14,310.21 crore provided under the advance facility.
Over the years, the finance ministry has questioned a relatively high rate retained by EPFO and has been nudging it to reduce the rate to a sub-8 per cent level in line with the overall interest rate scenario. EPFO rate continues to be the highest among other savings instruments. Small savings rates range from 4.0 per cent to 7.6 per cent, and have been kept unchanged in recent quarters, despite a fall in overall market rates. The Finance Ministry had questioned 2019-20 interest rate and the 2018-19 interest rate of 8.65 per cent as well, besides the EPFOís exposure to IL&FS and similar risky entities. In September last year, the CBT recommended splitting the payment of the interest for the financial year 2019-20 into two parts, citing ìexceptional circumstances arising out of Covid-19. However, from January 2021 onward, the EPFO began to credit the interest in one go.