A day before the Budget,Finance Minister Pranab Mukherjee has cut the interest on deposits in the Employees Provident Fund (EPF) to 8.25 per cent for this financial year.
The 1.25 percentage point cut from the 9.5 per cent interest that EPFOs nearly 4.7 crore subscribers enjoyed in 2010-11 is the steepest in over a decade,and in effect means the interest rate on provident fund is now lower than that on fixed deposits and Public Provident Fund (PPF) deposits.
Bank deposit rates are currently over 9 per cent,and interest rates on small savings instruments like PPF and National Savings Certificates (NSCs) have been raised to 8.6 per cent.
It is to inform that the ministry of labour and employment has conveyed the approval of the central government to credit interest at 8.25 per cent for the year 2011-12 to the account of each member of the scheme. You are accordingly requested to issue necessary instructions…, the EPFO said to its field offices in an internal circular issued last evening.
The decision had been pending with the finance ministry since December 2011,and Mukherjee had apparently been restrained so far by the assembly elections in five states.
The issue was not on the agenda of the meeting in February of the central board of trustees (CBT),the EPFOs apex policymaking body. Last years interest bonanza was the result of the chance discovery of Rs 1,700 crore in the EPFOs coffers. The cut in interest rate was recommended to the CBT in December,suggesting three rate options between 9.5 per cent and 8.25 per cent.