EPF Interest Rate of 8.5% for FY21 Approved by Fin Min; 6 Crore to Get Money by Diwali
EPF Interest Rate of 8.5% for FY21 Approved by Fin Min; 6 Crore to Get Money by Diwali
PF 8.5 per cent interest rate was approved by the finance ministry for FY21. This decision will bring some cheer to over 6 crore beneficiaries of Employees' Provident Fund (EPFO) ahead of Diwali

The finance ministry has approved 8.5 per cent interest rate on provident fund deposits for the year 2020-21. This decision will bring some cheer to over 6 crore beneficiaries of Employees’ Provident Fund (EPFO) ahead of Diwali. The retirement body will soon start crediting it into the beneficiary account.

The central board of trustees of EPFO kept the the interest rate unchanged on the provident fund deposits at 8.5 per cent for the financial year 2020-21. The decision was taken in the view of more withdrawals and less contribution by the members during COVID-19 pandemic. “The Central Board recommended 8.50% annual rate of interest to be credited on EPF accumulations in members’ accounts for the financial year 2020-21. The interest rate would be officially notified in the government gazette following which EPFO would credit the rate of interest into the subscribers’ accounts,” the board said in a statement earlier in March.

The labour ministry has to seek approval from the finance ministry on the proposed interest rate. Earlier this month, the top officials of the labour ministry met finance ministry officials and asked them to fast track the approval.

“People must appreciate that the government has maintained the rate of interest for 2020-21 despite a huge economic downturn due to COVID-19,” Virjesh Upadhyay, EPFO board member and general secretary of Bharatiya Mazdoor Sangh told Moneycontrol earlier.

At least 12 per cent of an employee’s basic salary and performance wages is compulsorily deducted as provident fund, while the employer contributes another 12 per cent.

Tax on EPF: How it Works

In Union Budget 2021, finance minister Nirmala Sitharaman announced that the interest on employee contributions to provident fund of over ₹2.5 lakh per annum will be taxed, starting from April 1. Up to ₹2.5 lakh has been kept as the deposit limit for which interest is tax exempt, finance minister said. Later, finance ministry increased the deposit threshold limit to ₹5 lakh per annum in provident fund for which interest would continue to be tax-exempt, if there is no employer contribution.

“In order to rationalise tax exemption for the income earned by high income employees, it is proposed to restrict tax exemption for the interest income earned on the employees’ contribution to various provident funds to the annual contribution of ₹2.5 lakh,” Sitharaman said during Budget 2021.

At present, EPFO has over 6 crore active members. The retirement body invests per cent of its annual accurals in equity and rest in debt investments. It added 14.81 lakh net subscribers in August 2021, reflecting a growing trend in net payroll for the first five months of this fiscal.

This move will affect the high-income earners and High Net-worth Individuals (HNIs). Anyone who earns more than ₹20.83 lakh a year will attract his or her interest on EPF contribution being taxed.

“It may be noted that the new provision only takes into account employees’ contribution and not the total contribution to the fund during any year,” said Gaurav Saraf, partner, VPTP & Co.

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