Govt raises EPF interest rate to 8.8% from 8.7%

bandarudattatreya2005885309bandarudattatreya2005885309NEW DELHI: The government today raised the interest rate on employees provident fund (EPF) contributions to 8.8 per cent for 2015-16 against 8.7 per cent approved by the Finance Ministry last week.

Labour Minister Bandaru Dattatreya announced the decision to raise interest rate. Last month the government was forced to withdraw the Budget proposal to tax a certain portion of withdrawals. Subsequently, it withdrew tighter withdrawal norms.
The decision to raise EPF interest rate from 8.7 per cent to 8.8 per cent was based on pure arithmetic calculation and in the interest of all the members of Employees Provident Fund Organisation.

Sources in the Ministry of Finance said, the rates are ratified on the basis of proposal from Ministry of Labour, taking into account the financial sustainability and ensuring stable returns to the investors.

The sources added that Labour Ministry had sought Ministry of Finance’s ratification of rate of interest at 8.8 per cent on the EPF accumulations for 2015-16. However, the MoF ratified the rate of 8.7 per cent since there was apprehension about use of past surplus funds and non-provisioning of enough amount to meet liabilities of inoperative accounts.
However, Labour Ministry has clarified to the Finance Ministry that the earnings in 2014-15 turned out to be more than the estimates and the same was used to recommend 8.8 per cent interest rate. Further, it was clarified that EPFO is doing separate provisioning for possible principal and interest payouts on inoperative accounts and the same is not disbursed among active members.
Hence, Finance Ministry has decided to ratify the proposal of Labour Ministry to pay 8.8 per cent interest to EPFO members. However, Finance Ministry has advised Labour Ministry to create a reserve fund for future which may help protect workers from interest rate shocks in a regime of falling interest rates.
The interest rate on EPF accumulations is administered by the Ministry of Labour and Employment on the recommendations of Central Board of Trustees of EPF.

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