NEW DELHI: The Employees’ Provident Fund
) board on Thursday recommended an increase in interest rate to 8.65% in the current financial year, compared with last year’s 8.55%, a move that will marginally improve the returns for six crore subscribers.
The pre-election announcement was the first increase in four years and came amid expectations that rates will be left unchanged. At a meeting , all members of Central Board of Trustees of the EPFO agreed to give higher interest to subscribers for the current year, labour minister Santosh Kumar Gangwar said.
Labour secretary Heeralal Samariya said even at this level, EPFO will have a surplus of around Rs 151 crore. The move, which will have to be endorsed by the finance ministry, comes when interest rates are falling. A higher interest rate may limit ability of banks to lower deposit rates to remain competitive.
With returns on provident fund contribution being tax free, post-tax returns on the EPFO will add up to over 12% in the top income bracket. In contrast, Public Provident Fund offers 8% to its subscribers, while the highest return offered by SBI on its deposits is 6.85% in your park money for five years, which will also make it eligible for tax breaks.
Some of the trustees on the EPFO’s central board, however, complained that the decision was not endorsed by the entity’s finance committee and detailed calculations were not shared in the agenda notes for the meeting.
The EPFO sought to comfort subscribers by saying that it had minuscule exposure to bonds issued by IL&FS and the non-banking finance company, which is groaning under a pile of debt, has been paying interest and principal on time.
“So far, there has been no default in interest or principal payment. We are watching the situation on future interest payments,” central provident fund commissioner Sunil Barthwal told reporters, while refusing to disclose investment details.
Provident and pension fund trusts, which have collectively invested large amounts in IL&FS bonds, have filed intervening petitions in the NCLT over fears that they could lose their money as the bonds come under unsecured debt.