8.5% Return on PF Deposits: Approval by Finance Ministry for FY21

8.5% Return on PF Deposits: Approval by Finance Ministry for FY21
image source – Forbes

The finance ministry has given its go-ahead to 8.5% rate of interest on provident fund deposit for 2020-21, paving the way the Employees’ Provident Fund Regulation (EPFO) can credit beneficiaries with up to 2 percent in additional monthly earnings over what they would have earned at existing rates through regular deposits into their accounts according to a top source familiar with developments within NDFPO.”

The EPFO has a surplus of over Rs 300 crore, and it’s expected to be even higher than last year when their numbers were at 1000 Crore.

The news of this decision will bring some cheer to Indians just a week before they celebrate Diwali. Labour secretary Sunil Barthwal confirmed the development and said the approval was received from India’s finance ministry today.

Still, he did not give any details about when we might hear more on it or how much it’ll cost us in taxes if implemented!

The Ministry of Labour needs to notify interest rates next year before EPFO starts crediting it into the beneficiary account.

Why was this decision made?

The EPF is finally starting to make up for the lost time. From having a deficit of Rs 1000 crore last year, they are expected to finish 2018 with a surplus of 300 crores!

The central board of trustees, headed by the labor minister, had approved an interest rate of 8.5% for 2020-21 this year, just as it was last year.

Still, some requirements have to go through before being implemented with the finance ministry’s approval process on mandatorily seeking their feedback regarding expediting things quickly since they met earlier this month and asked if everything could be speeded up due to them knowing beforehand what will happen when submitting paperwork etcetera.

What was the earlier state?

The Employees’ Provident Fund Organization had a revenue of around 70 billion Indian Rupees in the previous fiscal including 4 thousand crores from selling off their equity investments and 65 thousand trillion orbiting dollars from debt financing.

The Indian government is expected to soon announce a rise in interest rates for the Employees‘ Provident Fund (EPF).

According to top sources at Labor Minister’s office, the central board of trustees has recommended an increase from 8% currently, who requested anonymity because they cannot speak publicly about such matters.

The rates:

A source close to EPF says that they have just received news of the new 2020-21 interest rate. The ministry of finance has approved a seven-year low for deposits, which will be 8.5%.

This is down considerably from last year’s 9% but still more than necessary according to some experts who say it should go no lower than 6 or 7 percent.

In 2017, the subscriber’s interest rate was 8.8%. In 2016 and 2015, it stood at 9%, slightly higher than in 2013-2014 when rates were fixed at 7%-7.25% respectively, while they dipped down to 6% for 2012 and 2011 before going up again 1 percent points from 5%.

This decision will be made final after approval by Finance Ministry, which may take up two weeks as it does now from January 2020-21 onwards, but how much higher must we go? It seems that EPFO keeps on withdrawing funds even when people have been drawing plenty over this past year since last October.

When the financial crisis hit, EPFO took a new approach to manage retirement funds. Instead of investing all their money in debt instruments and equity at 15% annual interest rates like before – they now only invest about 10%.

The difference between this rate and what workers would need for many years without employment or reduced wages from being laid off is where withdrawals from these accounts come into play under the Covid withdrawal scheme.

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