EPF interest payout retained at 8.5% for FY2020-21

In a major relief to 60 million subscribers of the Employees’ Provident Fund Organisation (EPFO), the central board of trustees of EPFO have retained the interest payout on provident fund deposits at 8.5% for 2020-21, same as the preceding fiscal.

While this continues to be the lowest since 2012-13, it is better than the anticipated fall in interest rate on the back of higher withdrawals and lower deposits to the EPFO during the pandemic.

Labour secretary Apurve Chandra told ET the interest rate on PF deposits have been retained at 8.5% for the fiscal year 2020-21. The decision was taken at the 228th CBT meeting of EPFO in Srinagar on Thursday. EPFO had credited 8.65% in 2018-19

It’s estimated that more than 20 million EPFO subscribers made cumulative withdrawals of over Rs 73,000 crore until December 31, 2020, and this could rise further by the end of the financial year to surpass annual withdrawals of Rs 81,200 crore in FY19 by 16.37 million subscribers.

Further, in the May-July period, the government reduced the PF contribution to 10% from the statutory 12% under the EPF Act to allow a higher take-home salary for employees and reduce the burden on employers due to the pandemic. The EPFO has not disclosed how many establishments and employees availed of this option.

The retirement fund body invests up to 15% of its incremental corpus in exchange traded funds (ETFs). In FY20, the return on EPFO’s equity investments was minus 8.3%, compared with 14.7% in FY19.

The EPFO provided an 8.65% interest rate to subscribers for FY17 and 8.55% in FY18. It was slightly higher at 8.8% in FY16. It had given 8.75% interest in FY14 as well as FY15.

EPFO returns are substantially higher than that available on small savings. It had a surplus of Rs 1,000 crore after giving an 8.5% return for FY20. The February 1 budget had said interest on provident fund contributions by employees exceeding Rs 2.5 lakh per year will be taxed from April 1, 2021.