EPFO board recommends 8.5% interest for 2020-21

The board meeting chaired by Labour and Employment Minister Santosh Kumar Gangwar in Srinagar on Thursday, discussed the investment portfolio of the retirement fund body, and made its recommendation keeping the returns in view.

“For FY2021, the EPFO decided to liquidate investment in equity and the interest rate recommended is a result of combined income from interest received from debt investment as well as income realised from equity investment. This has enabled EPFO to provide higher return to its subscribers and still allowing EPFO with a healthy surplus to act as cushion for providing higher return in future also,” the Ministry said in a statement. “There is no over-drawl on EPFO corpus due to this income distribution,” the statement said.

A member of the board of trustees said “the interest rate has been decided on an income of Rs 70,000 crore from debt and equity investments of the EPFO”. This level of interest rate will leave a surplus of about Rs 200-300 crore, the member said.

The Board also discussed a proposal to restrict early withdrawal of pension amounts in EPF contributions in the proposed labour codes. Some members asked for lowering of the cap to one year from two years after exiting employment.

The retirement fund body saw high withdrawals and lower contributions in the aftermath of the Covid-19 pandemic. Until December 31, the EPFO had settled 56.79 lakh claims worth Rs 14,310.21 crore provided under the advance facility. A total 197.91 lakh final settlement, death, insurance, and advance claims worth Rs 73,288 crore were settled during April-December 2020. Exempted establishments, which run their own PF trusts, had settled 4.19 lakh claims, disbursing Rs 3,983 crore.

In March last year, the CBT had recommended an interest rate of 8.5 per cent for 2019-20. In September, the CBT recommended splitting the payment of the interest for the financial year 2019-20 into two parts, citing “exceptional circumstances arising out of Covid-19”. However, from January 2021 onwards, the EPFO began to credit the interest in one go.

The recommended interest rate for FY21 will now need to be ratified by the Finance Ministry, following which it will be notified by the Labour Ministry. The Finance Ministry has been nudging the EPFO to reduce the rate to a sub-8 per cent level in line with the overall interest rate scenario.

Small savings rates range from 4.0 per cent to 7.6 per cent, and have been kept unchanged for the January-March quarter. The Finance Ministry had questioned the 2018-19 interest rate of 8.65 per cent as well, besides the EPFO’s exposure to IL&FS and similar risky entities.

The government in the Budget for next year has proposed taxing interest on higher contributions to the EPF. Interest on provident fund contributions exceeding Rs 2.5 lakh per year will be taxed beginning the next financial year.