The government has finally approved the 8.65% interest rate for 2018-19 that would benefit 48 million subscribers of the Employees’ Provident Fund Organisation (EPFO) and a formal notification is expected soon, two government officials said requesting anonymity.
“The finance ministry has finally approved the interest rate and a formal order is expected by late evening [of Thursday],” one of the officials said. The decision was pending since February 2019.
Effectively, a higher rate of interest (8.65%) can now be credited into the accounts of EPFO subscribers. Until now, EPFO was crediting and settling EPF withdrawal claims of subscribers at the interest rate of 8.55%, which was approved for 2017-18. Now, subscribers will get the full interest amount credited to their accounts, the official said.
A formal notification of the interest rate was pending since February this year because a concurrence of the finance ministry was awaited. The finance ministry wanted the labour ministry and EPFO to downwardly revise the interest rate.
According to a Hindustan Times report on July 19, the labour ministry categorically rejected the finance ministry’s directive to reduce the 8.65% interest rate offered in 2018-19 as EPFO had sufficient surplus of over Rs 3,150 crore and could easily pay a higher interest rates compared to other savings schemes. The surplus was mainly earned through the exchange traded fund (ETF).
{{/usCountry}}According to a Hindustan Times report on July 19, the labour ministry categorically rejected the finance ministry’s directive to reduce the 8.65% interest rate offered in 2018-19 as EPFO had sufficient surplus of over Rs 3,150 crore and could easily pay a higher interest rates compared to other savings schemes. The surplus was mainly earned through the exchange traded fund (ETF).
{{/usCountry}}The EPF interest rate is determined by the Central Board of Trustees (CBT), which is the apex decision-making body. Trustees take a decision after assessing the annual returns of on the investments. It is the duty of EPFO to pass on the rightful share of the subscribers. As it does not take a penny from the consolidated fund of the government of India, it is not obliged to follow the finance ministry’s dictate, officials said. CBT is chaired by the labour minister and has representation of central and state government officials, trade unions and industry bodies.
Earlier, in a communication to the labour ministry, the finance ministry said it was worried that EPFO was offering significantly higher returns compared to similar funds managed by the central government.
In June, the finance ministry had written to the labour ministry to review its decision to offer 8.65% interest rate on two grounds; one pertained to the EPFO’s decision to invest in financially troubled IL&FS group companies that was loss-making preposition, and the other was appropriation of surplus of the previous year. Hindustan Times reported it on June 20.