Fintotal News Analysis | EPF Deposits To Earn Lesser This Year
EPF Deposits To Earn Lesser This Year
Ruby Jacob, 16 Mar 2012

This time the rate cut is from Employee Provident Fund Organization (EPFO) and is not hearty news for you.  Interest rate on deposits in Employee Provident Fund (EPF) has been cut to 8.25% for the year 2011-12 from 9.5%.

The Ministry of Labour and Employment, under whose purview EPFO comes, notified about the rate for this year and official circular has been passed by EPFO on 15 March directing officers to make payments for the year. The rate cut was approved by the Ministry of Finance whose intervention was sought by the trustees of EPFO in January since they were unable to arrive at a consensus on the rate issue.

EPFO had recommended a rate of 8.25% in December citing shortage of funds. But this drew the flak of trade union members who pressed for rate to be retained at 9.5% as in the last year. Following the Finance Ministrys recommendation of 8.25%, the Labour Ministry appealed to it to reconsider making it 8.6% to match the rate on PPF. The Finance Ministry held on to it stance. Even at 8.25% there will be deficit to the tune of approximately Rs 526 crores. 

EPF contribution is mandatory for all employees and employers of establishments in India with employee strength of 20 or more. Your contribution as an employee is 12% of the basic salary and your employer is required to make an equal contribution to it. Last year since EPFO discovered they were sitting on a surplus they hiked the rate to 9.5% on the condition that accounts of members would be updated within six months. Nearly 4.5 crores of members are subscribed to EPF.

Regretfully now EPF turns from the highest paying to be the lowest paying deposit scheme. Bank FDs earn around 9.5% on 5 year deposits. Public Provident Fund pays 8.6%. NSC VII gives 8.4% on 5 year deposit and NSC IX gives 8.8% on 10 year deposit. You would want to restrict your deposit in EPF to the statutory amount this year.

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