EPFO may lower the interest rate on deposits to 8.6%.

   Retirement fund body EPFO may lower the interest rate on deposits to 8.6 per cent for over 4.7 crore subscribers for 2011-12 to match it with the rate of public provident fund (PPF) scheme. The Employees’ Provident Fund Organisation (EPFO) had provided 9.5 per cent interest rate to its subscribers for 2010-11 after it found Rs 1,731 crore surplus in its books of account.

   “The Labour Ministry will soon be sending a note to the Finance Ministry, recommending 8.6 per cent rate of interest on provident fund deposits to EPFO subscribers for this fiscal as provided under PPF scheme”, a source privy to the development said.

   The source said the ministry wants bring the EPFO’s rate of return on par with the PPF rate.

   According to the EPFO’s income projections, if the body provides 8.25 per cent interest for 2011-12, it would leave a deficit of a Rs 24 lakh. It had further pointed out that an 8.5 per cent rate of return would translate into a deficit of Rs 526.44 crore.

   But, the Labour Ministry may factor in estimation error, which could spare around Rs 400 crore. This amount would be sufficient to pay an additional 0.25 per cent over the projected 8.25 per cent rate of return this fiscal.

   Moreover, the source said that about Rs 15,000 crore is lying in inoperative accounts which has been invested and is yielding returns. EPFO has not yet decided whether the return on these accounts would be distributed among live accounts.

   Inoperative accounts are those accounts that have not received any contribution for 36 months or more. EPFO had stopped payment of interest to such accounts from April 1, 2011.

   Last month, EPFO’s trustees had failed to decide on the interest rate for the current fiscal following sharp differences among them on the issue and had sought the Finance Ministry’s intervention.

   While the EPFO had suggested payment of interest at the rate of 8.25 per cent for 2011-12, the trade union members insisted it should be 9.5 per cent. The representatives of employers wanted the interest rate to be fixed at 8.5 per cent.

   The EPFO’s apex decision making body, Central Board of Trustee (CBT), had sent the three scenarios to Labour Ministry for further recommendation to the Finance Ministry.

   As per the practice, the CBT takes final call on the issue and seeks Finance Ministry’s concurrence on it.

Courtesy: http://taxguru.in