Updated: Dec 20, 2016, 12.31 AM IST
NEW DELHI:Keeping in line with falling interest rates, organised sector workers will earn 8.65% on their provident fund savings this year.
This follows a decision by the apex decision-making body of the Employees Provident Fund Organisation (EPFO) to reduce interest rate on provident fund deposits to 8.65% for 2016-17 from the current 8.8%.
Although union representatives on the EPFO board of trustees sought for the rate to be retained at last year's level, the agency opted otherwise. The move is in line with the falling rate regime with the RBI cutting key lending rates and banks reducing deposit rates following the demonetisation move last month.
"Taking into account relevant factors, the Central Board (of Trustees) decided to recommend 8.65% interest to its subscribers for 2016-17. Roughly 17 crore subscribers' accounts will be updated with this interest rate upon acceptance by the government," labour ministry officials said after the 215th meet of the Central Board of Trustees (CBT), the EPFO's decision making body. The rates need to be notified by the labour ministry, which will look at the projected earnings and expenditure of the EPFO for the current financial year.
As per the EPFO income projections of Rs 39,084 crore for the current fiscal, providing an 8.8% rate of interest on EPF deposits will leave a deficit of Rs 383 crore. However, at the rate currently announced, there would be a surplus of about Rs 69.34 crore.
The finance ministry had decided earlier this year to lower interest on EPF for 2015-16 to 8.7% from the 8.8% approved by CBT. However, the government had to roll back the decision and provide 8.8% interest following protests by trade unions.
Despite this cut, the returns will be higher than what the government pays on small savings schemes. In October this year, the government had lowered interest on many small savings schemes by 0.1 percentage points. The popular Public Provident Fund (PPF) now fetches only 8%.
RSS-affiliated trade union, the Bharatiya Mazdoor Sangh (BMS), said the rate offered was still higher and better than other small saving schemes. "We have agreed to the interest rate offered because if you take into consideration the tax exemption status of provident funds, the interest rate comes out to be close to 10%," said Vrijesh Upadhaya of BMS.
However, Conress-affiliated INTUC says the union is unhappy with the government's move. "The government could have offered higher interest rate considering their return on equity investment. We had asked for it and are unhappy with the decision," Ashok Singh of INTUC said.
The Board has also reduced administrative charges to 0.65% from 0.85% now besides recommending abolishment of administrative charges levied in implementing the Employee Deposit Linked Insurance Scheme, 1976, passing on the benefits of efficiency and computerisation to employers.
"Besides, the Central Board has also decided to constitute a sub-committee of CBT with members drawn from employees and employer representatives to study employment trends for the next 10 years and recommend appropriate administrative charges to the Central Board," the Board said.