EPFO: If you depend on the Employees Provident Fund (EPF) for your retirement needs, then you may be disappointed with the returns this financial year. In the wake of the Covid-19 pandemic, measures like withdrawal of the facility and EPF contribution will increase the money in the hands of PF account holders, but will still affect the returns in this financial year. The Employees Provident Fund Organization (EPFO) had announced an interest rate of 8.5 for the year 2019-20, despite the fall in interest rate in fixed deposits and small savings schemes.
Despite this, it is believed that these three points can affect the returns from your EPF.
1. Reduction in Statutory EPF contribution for 3 months:
The government has reduced the statutory EPF contribution from 24 per cent (including employee and employer) to 20 per cent for the next three months. Due to this, the salary received in hand will increase. But there will be a reduction in the retirement corps due to lower contribution. Saraswati Kasturirangan, partner at Deloitte India, said interest is deposited in the member’s account on monthly balance. Monthly balance will be lower due to less contribution for three months and less interest due to this.
2. Removed the penalty for delay in EPF deposit:
The situation arising out of the corona virus epidemic has not been able to do normal business and EPFO has lifted the penalty imposed by employers for delay in depositing EPF due to lack of cash flow. Harsh Jain, co-founder of the online investment platform Grove, said the penalty ensures that contributions are deposited on time and EPFO makes it easy to invest on behalf of the fund.
Delay in contribution by the employer has an impact on the monthly balance and due to this the amount of interest received on the deposit will be affected. Kasturirangan said that if the contribution is not deposited on time, the benefit of compound interest will not be there. Jain said, when we will be clear how many employers have decided to contribute after three months, after that the effect will be known.
3. EPFO’s interest rate is expected to fall this year:
When the Reserve Bank of India (RBI) is regularly cutting policy rates due to falling interest rate in India, it will be difficult for the EPFO to maintain the 8.5 percent rate in this financial year. The interest rate in the Public Provident Fund (PPF) has been reduced to 7.1 percent while the National Savings Certificate (NSC) interest rate has been reduced by 110 bps to 6.8 percent.
As the rate of return of various investments has fallen, corporates with PF trusts will need to review whether the earnings are sufficient to match the interest rates announced by the EPFO. Kasturirangan said, “We will also have to wait whether the low interest rate will be declared by the EPFO for the financial year 2020-21”.