The hike comes ahead of Lok Sabha polls likely to be held in April-May this year. With a total subscriber base of 29 crore, EPFO remains one of the most attractive savings mechanisms where returns do not attract income tax if contributions, statutory and voluntary, add up to under Rs 2.5 lakh annually. With subscribers tending to stick with the scheme, EPF deposits also benefit from compounding.
The interest rate of 8.25% – the highest in three years – was decided at the central board of trustees’ 235th meeting and the interest will begin to be credited to subscribers’ accounts once it is approved and notified by the Union finance ministry.
In March 2022, EPFO had lowered interest rate for 2021-22 to 8.1% from 8.5% in 2020-21. This was the lowest since 1977-78, when it was 8%.
Union labour and employment minister Bhupender Yadav, who chairs the central board of trustees, said, “The move is a step towards fulfilling PM Modi’s guarantee of strengthening social security for India’s workforce.”
The retirement fund body, which saw a 17.4% increase in its income, also recommended the distribution of Rs 1.7 lakh crore on a total principal amount of Rs 13 lakh crore to EPF members in FY 2023-24 as compared to Rs 91,151.7 crore (on Rs 11 lakh crore) in 2022-23. The recommendation to disburse over Rs 1 lakh crore, govt said, has been made for the first time.
Pointing to EPF’s healthy financial performance and potential to earn strong returns for its members, the labour ministry said EPFO has a “strong track record of distributing higher income to its members over the years while maintaining minimal credit risk”.
It also said that the interest rate offered by EPFO tends to be higher compared to other comparable investment avenues available and that EPFO’s investment strategy is to “prioritise safety and preservation of principal while also seeking growth opportunities”.