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EPFO CHEERS WORKING CLASS BY KEEPING INTEREST RATES ON PF UNCHANGED AT 8.5% ByZia Haq Mar 04, 2021 03:39 PM IST 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% 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. 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. “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. ALSO READ | GST COUNCIL TO FIX INVERTED DUTY ANOMALY SOON 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%. Subscribers will be paid an 8.5% interest during 2020-21 on these

deposits. Finance minister Nirmala Sitharaman, in the Union Budget presented in February, had announced that interest on employee contributions to provident fund of over ₹2.5 lakh per annum

would be taxed, starting April 1. She had said that the tax-exempted deposit limit was set at ₹2.5 lakh. 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. “Earnings of the EPFO are facing different situations in the financial markets. The EPFO’s earnings for 2020-21

are pegged at ₹65,000 crore and it will be comfortably able to pay 8.5% this year too,” Upadhyay said. 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. 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%. 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. 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 ₹2.5 lakh is aimed more at

curbing disproportionately high voluntary savings by high-income individuals,” said Bikram Dhamija, a partner at Compass Tax PLC. Stay updated with the latest Business News on Petrol Price,

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