The Central Board of Trustees (CBT) has recommended hiking interest rate by 10 basis points on Employees Provident Fund (EPF). This will benefit over 4.71 crore salaried persons working in various industrial and business units across the country as on March 31, 2018.
“The CBT decided to recommend raising rate to 8.65 per cent for the fiscal year 2018-19,” Santosh Kumar Gangwar, Labour Minister and Chairman of the CBT, told reporters here on Thursday. The rate was 8.55 per cent for 2017-18.
Interest rate is calculated on the basis of income earned and liability and it is hiked in case of surplus. As on date, the surplus is ₹151.67 crore. The Employees’ Provident Fund Organisation (EPFO) is the nodal authority for the scheme.
Awaits FinMin nod
Now, the recommendation will go to the Finance Ministry for final approval. Once approved, the rate will be notified and after that credited into subscribers’ account. Labour Ministry officials assured that there will not be much delay and even if there was some delay the subscribers will get higher interest rate from April 1, 2018 with compounding formulae. It may be recalled that for the fiscal year 2017-18, it took almost six months to credit the interest.
The EPFO had provided a five-year low rate of interest of 8.55 per cent to its subscribers for 2017-18. The body had kept the interest rate at 8.65 per cent in 2016-17 and 8.8 per cent in 2015-16. It provided 8.75 per cent interest for 2013-14 as well as 2014-15. The rate of interest was 8.5 per cent in 2012-13.
Any private sector entity and smaller public sector enterprises (PSEs) having 20 or more employees needs to be part of Employees Provident Fund mandatorily, while it is optional for those with less than 20 employees.
In case of mandatory enrolment, the employee’s share is 12 per cent of basic plus dearness allowance plus retaining allowance with matching contribution by the employer. While total contribution by employee goes to EPF, 8.33 per cent of the employee’s share goes to Employees’ Pension Fund (EPF). The contributions are payable on maximum wage ceiling of ₹15,000. The employee can also choose to contribute more but in such cases employer is not under any obligation to pay at such higher rate.
Funds collected through EPFO are invested in government securities and in equity market (but not directly through shares but through instruments such as exchange traded fund) in a ratio of 85:15. Earlier this month, it invested nearly ₹1,500 crore in the Bharat Exchange Traded Fund, which in turn puts money in CPSEs’ and some private entities’ shares. At present, there are over 6 crore subscribers.
Meanwhile, the CBT could not decide on hiking minimum assured pension. As of now, the limit is ₹1,000 which is proposed to be raised to ₹2,000. Gangwar said that there will be separate meeting to consider and take a decision on this proposal. If approved, this would benefit at least 40 lakh subscribers and cost the Centre a minimum ₹3,000 crore per annum.