The Union government has granted approval for an increased interest rate of 8.15% on Employees Provident Fund (EPF) deposits for the financial year 2022-23. This decision comes after the EPFO trustees ratified the proposal to raise the interest rates, which had hit a four-decade low of 8.10% in the previous fiscal year. The raised interest rate is set to benefit over six crore EPF subscribers, and the amount will be credited to their accounts shortly.
Background of EPF Interest Rates:
In the financial year 2021-22, the Employees Provident Fund Organisation (EPFO) reduced the interest rate to 8.10%, marking the lowest rate in four decades, compared to the previous 8.5% in FY 2020-21. The interest rate had not dropped to 8.10% since the year 1977-78 when it was 8%.
Approval of Increased Interest Rate:
On March 28, 2023, the EPFO decided to increase the interest rate for the financial year 2022-23 to 8.15%, subject to final government approval. The Union government endorsed the decision, raising the interest rate from the previous year’s low of 8.10%.
Beneficiaries of the Interest Rate Hike:
With a subscriber base of over six crore, the EPF will see a substantial number of beneficiaries benefiting from the higher interest rate of 8.15% for the financial year 2022-23. The EPFO’s field offices have been instructed to credit the increased interest rate into the subscribers’ EPF accounts.
The rate hike received approval from the EPFO trustees, following which the finance ministry granted its sanction for the increase. The Central Board of Trustees (CBT) of the EPFO, headed by the Union Labour and Employment Minister, is the top decision-making body responsible for such critical determinations.
Justification for the Interest Rate Increase:
The CBT emphasized that the interest rate of 8.15% and a surplus of Rs 663.91 crore are higher compared to the previous year. It pointed out the EPFO’s ability to provide higher income to its members during various economic cycles while maintaining minimal credit risk. The EPFO’s investment credit profile was deemed favorable, making the EPF interest rate more attractive than other comparable investment options available to subscribers.
EPF Contribution Details:
Contributions to the Employees’ Provident Fund (EPF) are mandatory for both employees and employers. Employees contribute 12% of their wages to their EPF accounts, while employers contribute 3.67% to the EPF account. The remaining 8.33% of the employer’s contribution is allocated towards the Employees’ Pension Scheme (EPS).
Tax Implications on EPF Interest:
Interest earned on EPF deposits will be taxable if the total deposits in an EPF and voluntary provident fund (VPF) account exceed Rs 2.5 lakh in a financial year.
Key Points About Employees Provident Fund Organisation (EPFO):
- The EPFO is a statutory body under the Ministry of Labour and Employment, Government of India, responsible for managing the Employees’ Provident Fund (EPF).
- The EPF is a social security scheme designed to provide retirement savings and financial security to salaried employees in India.
- Both employees and employers are obligated to make contributions to the EPF account, with employees contributing 12% of their wages and employers contributing 3.67%.
- The EPF interest rate is determined by the EPFO’s Central Board of Trustees (CBT) and is subject to government approval.
- In addition to the EPF, the EPFO also manages the Employees’ Pension Scheme (EPS), where a portion of the employer’s contribution goes towards pension benefits.
- The EPFO provides various online services, including EPF balance check, claim status, and UAN (Universal Account Number) activation.
- Contributions and interest earned in the EPF account are tax-exempt up to a certain limit, but any interest exceeding the limit may be taxable.
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