Nilanjan
The Union government has recently approved an 8.15% interest rate on Employees Provident Fund (EPF) deposits for the financial year 2022-23. This is welcome news for over six crore EPF subscribers who will benefit from the higher returns on their retirement savings. In this blog post, we will explain the background, benefits, approval process, and key points of the EPF interest rate hike.
Background of the EPF Interest Rates
The EPF interest rate is determined by the Employees Provident Fund Organisation (EPFO), a statutory body under the Ministry of Labour and Employment, Government of India. The EPFO manages the EPF, a social security scheme for salaried employees in India. The EPFO’s Central Board of Trustees (CBT), led by the Union Labour and Employment Minister, is the apex decision-making body responsible for making such decisions.
The EPF interest rate has been fluctuating over the years, depending on various factors such as market conditions, investment returns, and surplus availability. In March 2022, the EPFO reduced the interest rate to a four-decade low of 8.10% for FY 2021-22 from the previous rate of 8.5% in FY 2020-21. The EPF interest rate had not been as low as 8.10% since 1977-78 when it stood at 8%.
On March 28, 2023, the EPFO decided to increase the interest rates for the financial year 2022-23 to 8.15%, subject to final government approval. The Union government ratified the decision, raising the interest rate from the previous year’s low of 8.10%.
Beneficiaries of the Interest Rate Hike
The EPF currently has over six crore subscribers, who will benefit from the higher interest rate of 8.15% for the financial year 2022-23. EPFO’s field offices have been instructed to credit the increased interest rate into the subscribers’ EPF accounts.
The higher interest rate will boost the retirement savings of the EPF subscribers and provide them with more financial security after retirement. The EPF is one of the most popular and attractive investment options for salaried employees in India, as it offers tax benefits, guaranteed returns, and compounding effect.
Approval Process
The approval process for the EPF interest rate hike involved two steps: first, the CBT of the EPFO approved the rate hike, following which the finance ministry granted its approval for the increase.
The CBT noted that the interest rate of 8.15% and a surplus of Rs 663.91 crore are higher compared to the previous year. It cited the EPFO’s ability to distribute higher income to its members during various economic cycles while maintaining minimal credit risk. The EPFO’s investment credit profile was deemed favorable, making the EPF interest rate more attractive than other comparable investment options available to subscribers.
Justification for the Interest Rate Increase
The CBT noted that the interest rate of 8.15% and a surplus of Rs 663.91 crore are higher compared to the previous year. It cited the EPFO’s ability to distribute higher income to its members during various economic cycles while maintaining minimal credit risk. The EPFO’s investment credit profile was deemed favorable, making the EPF interest rate more attractive than other comparable investment options available to subscribers.
EPF Contribution Details
Contributions to the Employees’ Provident Fund (EPF) are mandatory for both employees and employers. Employees contribute 12% of their wages to their EPF accounts, while employers contribute 3.67% to the EPF account. The remaining 8.33% of the employer’s contribution is allocated towards the Employees’ Pension Scheme (EPS).
Interest earned on EPF deposits will be taxable if the total deposits in an EPF and voluntary provident fund (VPF) account exceed Rs 2.5 lakh in a financial year.
Key Points About Employees Provident Fund Organisation (EPFO):
- Employees Provident Fund Organisation (EPFO) is a statutory body under the Ministry of Labour and Employment, Government of India.
- It manages the Employees’ Provident Fund (EPF), a social security scheme for salaried employees in India.
- EPFO’s primary objective is to promote retirement savings and provide financial security to employees after retirement.
- Both employees and employers are required to make contributions to the EPF account, with employees contributing 12% of their wages and employers contributing 3.67%.
- The EPF interest rate is determined by the EPFO’s Central Board of Trustees (CBT) and is subject to government approval.
- EPFO also manages the Employees’ Pension Scheme (EPS), where a portion of the employer’s contribution goes towards pension.
