NEW DELHI: The central board of trustees of the Employees Provident Fund Organisation on Friday recommended retaining the interest rate at 8.25% for the current financial year, a decision that must be ratified by the finance ministry before money is credited into the accounts of seven crore subscribers.
“Compared to many other fixed-income instruments, the Employees Provident Fund (EPF) offers relatively high and stable returns, ensuring steady growth of savings. The interest earned on EPF deposits is tax-free (up to a specified limit), making it a highly attractive investment option for salaried individuals. This reflects strong confidence in the credit profile of EPFO’s investments and its ability to deliver competitive returns to its members,” an official statement said.
A few years ago, the finance ministry introduced tax on interest income earned by those who contribute over Rs 2.5 lakh annually, arguing that the move would affect only 1% subscribers.
At 8.25%, EPFO’s returns are significantly higher than of public provident fund, where the rates are currently pegged at 7.1%. PPF, which comes with an annual investment cap of Rs 1 lakh, also offers benefit of compounding.
While some banks are offering over 8% on fixed deposits, SBI is offering 7.5% in the two- to three-year bucket, but the interest income will be taxed, and there is no benefit of compounding. Someone in the 30% tax bracket will see a 5.25% post-tax return of FD.
Given the volatility in the stock markets, parking money in small savings instruments as well as EPFO through the voluntary contribution route may not be a bad idea for a few months.
Separately, the EPFO board also announced amendments to the Employees’ Deposit-Linked Insurance (EDLI) scheme, including a minimum benefit of Rs 50,000 to an EPF member who dies without completing one year of continuous service. “This amendment is expected to result in higher benefits for more than 5,000 cases of deaths in service, every year,” the official statement said.
Besides, EDLI benefit will be admissible if a member dies within six months of his or her last contribution.
Further, the EPFO board has recommended changes to the continuous service clause. Earlier, a gap of even a day or two, such as weekends or holidays, between jobs led to the denial of EDLI benefits as the condition of continuous service of one year was not met. Now, a gap of up to two months between two spells of employment will be considered as continuous service.