Finmin Approves 8.5% Return on PF Deposits for FY21

The finance ministry has given its go ahead to 8.5% rate of interest on provident fund deposit for 2020-21 paving way for the Employees’ Provident Fund Organization to credit the interest in accounts of over 60 million beneficiaries.

The move is expected to bring some cheer a week ahead of Diwali. Lab our secretary Sunil Barthwal confirmed the development to ET.

“Approval was received from the finance ministry today. It will be notified as soon as possible,” he said.

The labour ministry has to notify the interest rate for the year before EPFO starts crediting it into the beneficiary account.

The move is expected to leave EPFO with a surplus of Rs 300 crores compared to the preceding financial year when it had a surplus of Rs. 1000 crores.

The central board of trustees of EPFO, headed by the labour minister, had in March this year approved the interest rate of 8.5% for 2020-21, same as the previous year.

However, the labour ministry has to mandatorily seek approval from the finance ministry on the proposed rate. The process was fast tracked after top officials of the labour ministry met finance ministry officials earlier this month to address their queries and asked them to expedite the process.

The finance ministry has over the past few years questioned the higher rate of interest declared by EPFO year after year when the rate of interest for other government schemes including public provident fund or small saving schemes was much lower.

EPFO had pegged an income of around Rs. 70,300 crores in the previous fiscal including around Rs. 4,000 crores from selling a portion of its equity investments and Rs.65,00 crores from debt.

Bases on this, its central board of trustees, headed by the labour minister, has recommended the interest rate of 8.5% for FY21. EPFO had retained the interest rate on PF deposits for 2020-21 same as 2019-20 despite the huge amount of Covid withdrawals from the retirement find kitty since the scheme was announced last year.

EPFO has an active subscriber base of more than 60 million and every year it invests 15% of its annual accruals in equity and rest in debt instruments. However, since the outbreak of Covid millions of salaried class workers have lost jobs or have been working on reduced wages prompting them to with-draw from their retirement fund kitty under the Coivd withdrawal scheme.

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