In a move that will impact about 17 crore workers, the Central Board of Trustees of the Employees Provident Fund Organisation (EPFO) on Monday reduced the interest rate payable on their PF savings for this financial year to 8.65 per cent, as against 8.8 per cent in 2015-16. This is the lowest return on EPF savings in the last seven years.
“The decision to recommend this interest rate was made keeping in mind the overall economic scenario where interest rates are coming down,” said Bandaru Dattatreya, Minister of State for Labour who chairs the EPF board.
The Minister cited the lower surplus from the previous year as another factor for the rate cut.
The surplus from the previous year was Rs. 410 crore, in contrast to a surplus of Rs. 1,604 crore added to last year’s income from the year before it.
Fixing the interest rate at 8.65 per cent will result in a surplus of about Rs. 269 crore for the next year, the Minister said.
“Even at 8.65 percent, EPF will deliver better returns than other savings instruments such as Public Provident Fund, GPF and post office term deposit schemes,” he said. According to him, the EPFO Trust corpus stood at Rs. 7.48 lakh as on March 31, 2016.
As per the official estimates of EPFO’s return on investments this year, retaining the EPF rate at 8.8 per cent would have led to a deficit of Rs. 384 crore. At a lower interest rate of 8.5 per cent, the projected surplus was Rs. 975 crore.
In the meeting, Mr. Dattatreya initially proposed an interest rate of 8.6 per cent that would have created a surplus of Rs. 522 crore. However, after trade union representatives voiced their protest, the interest rate was kept at 8.65 per cent.
Employee representatives were still unhappy, though. D.L. Sachdev, Secretary, All India Trade Union Congress, and a member of the EPF board, said the reduction of interest rate reflected the “anti-labour attitude” of the Union government.
“After returning to New Delhi, representatives of all trade unions will meet and discuss the issue threadbare before deciding on the future course of action,” he said.
Another board member K.N. Umesh, state secretary of the Centre of Indian Trade Unions (CITU) Working Committee, blamed the EPFO’s decision to invest in the stock market through exchange-traded funds as a reason for the decline in its income.
The RSS-affiliated Bharatiya Mazdoor Sangh (BMS) was the only union that “appreciated the decision of CBT” to lower the interest rate saying “in the present scenario the interest [rate] on other various deposit schemes is much lower, as fixed deposit is offering interest at seven per cent only.”
“It is to be noted that interest earned upon various deposit schemes is taxable, whereas the interest on EPF is exempted from tax. Compounding the 1.65 per cent plus tax exemption comes to 12 per cent,” the union said in an official statement.
Central Provident Fund Commissioner V.P. Joy said that roughly 17 crore EPF subscribers’ accounts would be updated with this interest rate upon acceptance by the government.
“The Union Government has time till March to notify the recommendation,” he added.
Mr. Dattatreya also said that a special campaign would be launched to enrol more workers into the EPF net in the coming year through district EPF offices and a dedicated team of officials assigned to the drive.