Four crore subscribers of the Provident Fund will now get lesser return on their deposits as the retirement fund body EPFO today decided to slash the interest for the current fiscal to a four-year low of 8.65 per cent, from 8.8 provided in 2015-16.
"The Employees Provident Fund Organisation's apex decision making body, the Central Board of Trustees (CBT), has taken a decision to lower the interest rate to 8.65 per cent for the current fiscal from 8.8 per cent in 2015-16," Indian National Trade Union Congress Vice-President Ashok Singh told PTI after the meeting at Bengaluru.
The Employees Provident Fund Organisation (EPFO) had provided 8.8 per cent rate of interest on deposits for 2015-16 to its four crore contributing subscribers. It maintained 8.75 per cent for 2013-14 and 2014-15 while it was 8.5 per cent in 2012-13.
"We have decided the interest rate for EPF subscribers at 8.65 per cent for 2016-17. The decision was arrived at after detailed consultations with all stakeholders. With consensus we have taken this decision," Union Minister of State for Labour and Employment Bandaru Dattatreya told reporters here.
After the 215th meeting of EPFOs apex decision making body, the Central Board of Trustees (CBT), the minister said: "In spite of giving 8.65 per cent interest rate, we have surplus of Rs 269 crores."
He said that despite reduction, EPF paid the highest rate among others like Public Provident Fund (PPF), where the interest rate is 8.1 per cent; General Provident Fund (GPF), 8 per cent and post office term deposits that start from 7.10 per cent for one year."
"The overall scenario is such that interest rates are coming down. We are giving the highest interest rate for workers. It indicates our Ministry and our Prime Ministers commitment to protect the interest of employees," he added.
As per the EPFO income projections, retaining 8.8 per cent rate of interest for the current fiscal would have left a deficit of Rs 383 crore.
However, the body could have utilised about Rs 409 crore surplus with it, which accrued after providing 8.8 per cent rate of interest for 2015-16, to retain the same rate of return for the current fiscal.
A surplus of about Rs 69.34 crore was stipulated if interest rate was to be lowered to 8.7 per cent.
EPFO has projected income of Rs 39,084 crore for the current fiscal.
As per sources, the Finance Ministry has been asking the Labour Ministry to align the EPF interest rate with other small saving schemes of the government like Public Provident Fund (PPF).
In September, the government reduced interest rates on small savings schemes marginally by 0.1 per cent for the October-December quarter of 2016-17, which resulted in lower returns on PPF, Kisan Vikas Patra, Sukanya Samriddhi Account, among others.
The Labour Ministry however wanted to retain 8.8 per cent for the current fiscal as well, a source said. Labour Ministry was seeking the Finance Ministry's informal approval over the issue in advance.
"In order to avoid any uproar on interest of EPF, Labour Minister Bandaru Dattatreya has recently met Finance Minister Arun Jaitley and Minister of State for Finance Arjun Ram Meghwal to convince the ministry for retaining 8.8 per cent rate of interest for the current fiscal as well," said a source.
The Finance Ministry had earlier this year decided to lower interest on EFF for 2015-16 to 8.7 per cent from the 8.8 per cent approved by the CBT, which is headed by the Labour Minister.
Earlier this year, it lowered interest rate on EPF for 2015-16 to 8.7 per cent from 8.8 per cent approved by the CBT but the step was retracted after protests by trade unions.
Interest income from PF investments for 2016-17 has been estimated mainly on the basis of interest income received or receivable in this financial year, including surplus of Rs 410 crore from previous year, an official said. "Last year, the interest rate decided was at 8.8 per cent.
At that time, along with the income of EPFO, the surplus from the previous year was Rs 1,600 crore. This year, along with the income, the surplus available is Rs 410 crore," EPFOs Central Provident Fund Commissioner V P Joy said on the reduction in interest rate.
As the surplus has come down compared to the previous year, interest has been reduced by 0.15 percentage point compared to last year, he said, adding that "if we had declared more interest rate this year, surplus from this year for next year would have been less."
Dattatreya also said that a decision has been taken to reduce EPFO administrative charges from 0.85 per cent at present to 0.65 per cent on total wage on which contributions are payable.
The CBT also recommended to abolish administrative charges levied in implementing the Employees Deposit Linked Insurance Scheme, 1976 passing on the benefits of efficiency and computerisation to employers, a Labour Ministry statement said.
The Central Board also decided to constitute a sub-committee of CBT with members drawn from employees and employer representatives to make a pragmatic study of employment trends for next 10 years and recommend appropriate administrative charges to the Central Board, it added.
The minister said a campaign will be undertaken to meet the twin objectives of increasing the enrolment of new workers, thereby extending social security benefits to all workers and reduce litigation.
(With PTI inputs)