Provident Fund Rate Slashed To 4-Decade Low Of 8.1%: 10-Point Guide

The board of trustees of EPFO today slashed the interest rate to 8.1 per cent for 2021-22, the lowest rate since 1977-78, when it was 8 per cent. The interest rate was 8.5 per cent in 2020-21.
The decision was taken during the meeting of the EPFO's central board of trustees, which was held in Guwahati.
Labour Minister Bhupender Yadav while elaborating on the board's decision said that the interest rate was finalised after keeping in mind the prevailing international conditions and the market situation.
"We made the recommendation of 8.1 per cent interest rate after reviewing the prevailing market situation as well as the international scenario. Also we cannot take high risk instruments as we have to keep social security and market stability in mind, and therefore the decision was taken," Mr Yadav said.
The minister said that even after paying the rate of 8.1 per cent, EPFO has a surplus of around Rs 450 crore with it. Interest rates are fixed based on the earnings of the retirement fund body on the deposits it has. While the corpus has gone up by 13 per cent, interest income is up only 8 per cent.
Employee representatives sought higher interest rates but the Central Board of Trustees (CBT) settled for 8.1 per cent, PTI reported. The board's recommendation will be sent to finance ministry soon.
Once finance ministry ratifies the board's decision, EPFO will direct its field offices to credit the interest income calculated at the new rate of 8.1 per cent for 2021-22 in the subscribers' accounts.
In March 2020, EPFO had cut the interest rate on provident fund deposits to a seven-year low of 8.5 per cent for 2019-20.
Provident fund savings are mandatory under the employees' provident funds and Miscellaneous Provisions Act, 1952. At least 12 per cent of an employee's basic salary is compulsorily deducted to be saved in provident fund, while an employer co-contributes an equal amount.
The Coronavirus pandemic has strained EPFO's earnings. EPFO delayed payments for 2019-20 and paid the interest in two installments, deriving from two sources of its investments - 8.15 per cent from debt investments and 0.35 per cent from the equity portfolio.