The new rate of interest for the PF savings would benefit at least six crore subscribers
The tussle between the Labour and the Finance Ministries on the payment of 9.5 per cent interest instead of 8.5 per cent to the employees' Provident Fund (PF) subscribers for 2010-11 may end smoothly next week, with the Finance Ministry reversing its “objection” for the new rate and pave way for issuing a notification by month end.
The new rate of interest for the PF savings would benefit at least six crore subscribers.
Labour and Employment Secretary P.C. Chathurvedi told The Hindu that his department had properly explained to the Finance Ministry how it had planned to manage the fund with the new interest rate, and he was hopeful that the latter would be convinced and would give clearance for issuance of a notification by the month end.
The Central Board of Trustees (CBT) of the Employees Provident Fund Organisation (EPFO), in its meeting on September 15, 2010, had approved the new interest rate for 2010-11, increasing it by one per cent from 8.5 per cent that had been paid for the last five years.
The Finance Ministry's objection to the new rate was that it was not sustainable in the long run. However, the Labour Ministry replied that the calculation was based on a thorough analysis of the PF account, and only after getting satisfied that there was a surplus of Rs.1731 crore in the interest suspense account, which could be utilised for paying the additional interest rate.
The measure would cost Rs.1,700 crore to the EPFO due to payment of increased interest rate. The new interest rate would benefit PF subscribers in the private and public sector companies, firms and departments.
Sources said the Finance Ministry might also positively consider another request of the Labour Ministry to exempt the amount from the increased interest rate from the levy of the income-tax, as had been done earlier. The Finance Ministry's fresh notification on August 26, 2010, seeks to exempt interest income up to 8.5 per cent with effect from September 1, 2010.
If the notification is not amended, the additional returns of one per cent would have to be taxed.