- The labour ministry says the EPF interest rate was fixed by EPFO after keeping a reasonable surplus
- The finance ministry had asked the labour ministry to cut down the interest rate for FY 2018-19
NEW DELHI: After a finance ministry proposal to cut down the Employees’ Provident Fund Organization (EPFO) interest rate for the last financial year 2018-19 was shot down by the labour ministry, EPF rates may remain unchanged for about 6 crore subscribers.
In February, the retirement fund body, managed by the labour ministry, had announced a 10 basis points increase in the interest rate on provident fund deposits to 8.65% for 2018-19. But last month, the finance ministry wrote to labour ministry asking it to reduce the rate saying EPFO might have suffered losses from its investments in the crisis-ridden Infrastructure Leasing & Financial Services (IL&FS) group of companies.
According to a report in the Hindustan Times today, the labour ministry has now replied to the finance ministry saying that the interest rate was fixed after keeping a reasonable surplus, which is more than ₹3,150 crore. A large part of the surplus came as returns from investments EPFO has made in ETFs over the past few years.
Mint had reported last month that the EPFO and the labour ministry had decided to defend its decision of giving an 8.65% rate. A government official had said that the labour ministry believes that since the government does not pay subsidy on EPF rate and the payout is based on EPFO’s investment returns, there is “no logic to penalize the working class” by lowering their yield.
An official had said when the decision to hike the EPF interest rate by 10 basis points was taken, it was unanimous with representation from the finance ministry as well. “Four months after a decision was taken, you cannot go back,” a government official had said in the June 30 Mint report.
EPFO does not take any money from the consolidated fund of the Government of India, and is not obliged to follow the finance ministry’s suggestions, the HT report said quoting an official.
The finance ministry has recently cut the interest rate for General Provident Fund by 10 basis points to 7.9%, as compared to 8% in the previous quarter. Similarly, the interest rates on some small savings schemes, including PPF and Senior Citizen Savings Scheme, have also been cut by 10 basis points for the July-August quarter. Public Provident Fund (PPF) for the July-September quarter will fetch 7.9% interest rate, as compared to 8% in the previous quarter.