Provident fund subscribers will get lower interest rate on their deposits this year as compared to last year. The provident fund body – the Employees Provident Fund Organisation or EPFO – at a meeting today decided to give 8.65 per cent interest rate for current fiscal year (2016-17). The move will impact over four crore employees who contribute part of their salary towards the provident fund kitty.
Provident fund subscribers had received an 8.8 per cent interest on their deposits last year (2015-16).
For salaried individuals, the employee provident fund is an important tool for savings towards retirement years. Every month, a salaried individual contributes 12 per cent of his/her salary to the EPF account the employer matches this. A part of the employer’s contribution goes to into Employee Pension Scheme.
The lower interest rate on provident fund deposits comes in the wake of a general decline in interest rate across different financial savings instruments, including bank fixed deposits and small savings schemes. Analysts say that interest rates on fixed deposits are likely to fall further as the banks’ kitty swells after demonetisation.
Despite the lowering of interest rate on provident fund deposits, analysts say that it still remains an attractive investment avenue. Rakesh Bhargava, director at Taxmann, said, “Reduction in rate of interest is a setback for 4 crore employees, yet the rate of interest is still very attractive in comparison to rate of interest on bank fixed deposits, National Savings Certificates, government bonds, public provident funds, etc.”
If the provident fund body had retained 8.8 per cent rate of interest for the current fiscal year, it would have faced a deficit of Rs. 383 crore. The provident fund body had earlier projected an income of Rs. 39,084 crore for the current fiscal year.
The government had earlier this year sharply lowered the interest rate on small savings schemes like Public Provident Fund (PPF), Kisan Vikas Patra and Sukanya Samriddhi Account.
According to the new norms on small savings schemes effective from April 2016, interest rates will be revised every quarter as opposed to earlier norm of annual revision.
The popular Public Provident Fund will fetch an interest rate of 8 per cent for the December quarter. The rate of interest for 5-Year Senior Citizens Savings Scheme and 5-Year National Savings Certificate had been reduced to 8.5 per cent and 8 per cent, respectively.
Earlier this year, the Finance Ministry had had decided to lower interest on provident fund deposits for 2015-16 to 8.7 per cent from the 8.8 per cent approved by the Central Board of Trustees or CBT, headed by the Labour Minister. The Central Board of Trustees is the apex decision-making body of EPFO. Following protests by trade unions, the government later rolled back its decision and approved an 8.8 per cent rate of interest on provident fund deposits for 2015-16.