Employee provident fund raised to 9.5 percent

NEW DELHI - The government Wednesday raised the interest rate on employees’ provident fund by 1 percentage point to 9.5 percent for this fiscal.

The announcement came after a meeting between Labour Minister Mallikarjun Kharge and the central board of trustees (CBT), the policy making body of the Employees Provident Fund Organisation (EPFO).

The decision to hike the interest rate will increase returns on investments for over 4.7 crore subsbribers of the EPF scheme. The EPFO currently has a corpus of about Rs.2.5 trillion.

The EPF rate was last changed in 2005-06 and set to 8.5 percent. Prior to this, the EPFO had offered 12 percent as a rate of return between 1989 and 2000.

The hike is lower than the 10.5 percent level that trade union representatives have been demanding.

While a higher provident fund rate would come in handy for the middle class, which has been facing a double digit inflation since last year, the move will have an impact on the books of India Inc.

Companies, which run provident fund trusts are required to match the rate declared by the government resulting in a bigger outgo under this head.

The hike in the rate will result in a deficit of about Rs.1,600 crore, but it would be made good by a surplus of about Rs.1,730 crore in the interest suspense account of the EPFO.

The recommendation of the CBT will now be forwarded to the Finance Ministry, which is expected to accept it.