EPFO cuts interest rate on deposits to 7-year low of 8.5% for 2019-20

Retirement fund body Employees Provident Fund Organisation (EPFO) on Thursday (March 5) lowered the interest rate on provident fund deposits to a seven-year low of 8.5 per cent for the current financial year.

The EPFO had provided 8.65 per cent rate of interest on EPF for 2018-19 to its around six crore subscribers. The decision was taken at a meeting of the EPFO’s apex decision-making body — the Central Board of Trustees (CBT).

“The EPFO has decided to provide 8.5 per cent interest rate on EPF deposits for 2019-20 in the CBT meeting today,” Labour Minister Santosh Gangwar said here after the meeting.

The minister also said that the EPFO will have a surplus of over ₹700 crore on providing 8.5 per cent rate of interest on EPF for this fiscal.

A ministry source said, “The EPFO would have left with a surplus of over ₹300 crore if it had provided 8.55 per cent rate of interest on EPF for this fiscal. There would have been a deficit if the EPFO had provided a rate of more than 8.55 per cent for current fiscal.”

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The EPF interest rate announced for the current fiscal is lowest since 2012-13 when it was 8.5 per cent.

The EPFO had provided 8.65 per cent interest rate to its subscribers for 2016-17 and 8.55 per cent in 2017-18. The rate of interest was slightly higher at 8.8 per cent in 2015-16. It had given 8.75 per cent rate of interest in 2013-14 as well as 2014-15, higher than 8.5 per cent for 2012-13.

Now, the labour ministry requires the finance ministry’s concurrence on the matter. Since the Government of India is the guarantor, the finance ministry has to vet the proposal for EPF interest rate to avoid any liability on account of shortfall in the EPFO income for a fiscal.

The finance ministry has been nudging the labour ministry for aligning the EPF interest rate with other small saving schemes run by the government like the public provident fund and post office saving schemes.

How will the rate cut affect salaried employees?

Salaried employees investing in provident funds will receive 0.15 per cent lesser returns on the amount they deposit this year, when compared to last year. Last year’s interest rates stood at 8.65 per cent.

However, even at 8.5 per cent, the interest rate is higher than the interest rate for small savings. Experts say subscribers may not lose too much of the returns in interest.

(With inputs from agencies)