The Central Board of Trustees of the Employee Provident Fund Organization (EPFO) retirement fund body recommended that the interest rate for fiscal year 2020-21 be kept at 8.5 percent.
This rate, the same as last year, is the lowest offered by EPFO in eight years.
The board meeting chaired by Labor and Employment Minister Santosh Kumar Gangwar in Srinagar on Thursday discussed the investment portfolio of the pension fund body and made its recommendation taking into account returns.
“For fiscal year 2021, EPFO decided to liquidate the equity investment and the recommended interest rate is the result of the combined interest income received from the debt investment, as well as the income earned from the equity investment. . This has allowed EPFO to provide a higher return to its subscribers and still allows EPFO with a healthy surplus to act as a cushion to provide a higher return in the future as well, ”the Ministry said in a statement. “There is no excess carryover in the EPFO corpus due to this income distribution,” the statement said.
A member of the board of trustees said that “the interest rate has been decided on an income of Rs 70,000 crore from EPFO debt and equity investments.” This level of interest rate will leave a surplus of around 200 to 300 crore rupees, the member said.
The Board also discussed a proposal to restrict the early withdrawal of pension amounts in EPF contributions in the proposed labor codes. Some members called for the limit to be lowered to one year from two years after leaving employment.
The retirement fund body recorded large withdrawals and lower contributions after the Covid-19 pandemic. As of December 31, EPFO had settled claims of 56.79 lakh worth Rs 14,310.21 crore provided under the advance facility. A total of 197.91 lakh of final settlement, death, insurance and anticipated claims worth Rs 73,288 crore were settled during April-December 2020. The exempted establishments, managing their own PF trusts, had settled 4 claims, 19 lakh, shelling out Rs 3,983 crore.
In March of last year, the CBT recommended an interest rate of 8.5 percent for 2019-20. In September, the CBT recommended dividing the 2019-20 fiscal year interest payment into two parts, citing “exceptional circumstances arising from Covid-19.” However, as of January 2021, the EPFO began crediting interests in one fell swoop.
The recommended interest rate for fiscal year 21 must now be ratified by the Ministry of Finance, after which it will be notified by the Ministry of Labor. The Ministry of Finance has been pressuring the EPFO to lower the rate to below 8 percent in line with the general interest rate scenario.
Small savings rates range from 4.0% to 7.6% and have remained unchanged for the January-March quarter. The Finance Ministry had also questioned the 2018-19 interest rate of 8.65 percent, in addition to EPFO’s exposure to IL&FS and similar risk entities.
The government in the Budget for next year has proposed to tax interest on higher contributions to the EPF. Interest on provident fund contributions exceeding Rs 2.5 lakh per year will be taxed from the next financial year.
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