Provident Fund Interest Rate At Five-Year Low, Reduced To 8.55%

After the 220th board meeting of the Central Board of Trustees of the Employees’ Provident Fund Organisation (EPFO) on February 21, 2018, the board has recommended slashing the interest for its 5-crore subscribers to a five-year low of 8.55% for the current financial year of 2017-18 from 8.65% last year.

Labour and Employment Minister Santosh Gangwar said that at a rate of 8.55%, the EPFO will have a surplus of Rs 586 crore. “Hopefully, the Finance Ministry will give its nod,” Gangwar said, as reported by The Indian Express.

Govt’s reason for the cut

EPFO’s Finance, Audit and Investment Committee (FAIC) estimated that retaining last year’s 8.65% would have resulted in Rs 48 crore surplus government spending. So, anything higher than 8.65% would result in a deficit.

At 8.70% interest on the principal amount of Rs 5.38 lakh crore, the EPFO would have faced a deficit of around Rs 220 crore, while at 8.60% interest rate, EPFO would have earned a surplus of Rs 318 crore, as per the FAIC calculations.

Labour ministry officials said the cut comes at a time when returns on debt funds have decreased to 6.75% from 7.5-8% last year.

“Market is so volatile that it is difficult to evaluate about future. We paid 8.65% last fiscal, which had resulted in a surplus of Rs 695 crore last year,” Gangwar said.

Usually, after the EPFO decides rates, they are then ratified by the Finance Ministry. According to The Indian Express, Labour Ministry suggested that the decision came in accordance with the Finance Ministry’s advise which indicates that the rate cut this year will help in a hike in EPF next year.

Congress not happy

When BJP came to power, in 2014-15 the interest rate was 8.75%. The next year they increased it to 8.80%. But after that, they reduced it to 8.65% and now to a five-year low of 8.55%.

“The government has once again backstabbed the common people and honest taxpayers of the country by reducing the interest rates in EPFO holders from 8.65% to 8.55 per cent….This is the second such reduction since 2014-15,” Congress chief spokesperson Randeep Surjewala said.