The Employees’ Provident Fund Organisation (EPFO) has recommended keeping the interest rate for the financial year 2024-25 unchanged at 8.25%, ensuring continuity for over 7.4 crore contributing subscribers. The decision was made during the 237th meeting of the Central Board of Trustees (CBT), chaired by Union Labour and Employment Minister Mansukh Mandaviya. The recommendation will now be sent to the Ministry of Finance for final approval before being credited to subscribers’ accounts.
This move follows last year’s hike in the interest rate, which was the highest in three years, ahead of the Lok Sabha elections. Despite an overall decline in interest rates in the economy, the EPFO has opted for stability, considering potential financial market volatility amid expected further rate cuts by the Reserve Bank of India (RBI). On February 7, the RBI reduced the repo rate to 6.25% after maintaining it at 6.5% for two years.
The EPFO’s investment returns are closely linked to government securities and equity market yields. By retaining the interest rate at 8.25%, the retirement fund body anticipates a surplus of Rs 5,300 crore, a significant increase from the estimated Rs 300 crore for 2023-24. Initially, there were discussions about lowering the interest rate to 8.20%, following recommendations from the Finance Ministry. However, the Board ultimately decided to maintain the current rate. Some trade unions, including the Trade Union Coordination Centre (TUCC), had demanded an increase to 8.30%, arguing that a surplus of Rs 4,550 crore would still remain even at the higher rate.
In addition to the interest rate decision, the EPFO is set to make a provision of around Rs 1,500 crore following rulings by the National Company Law Tribunal regarding investments in IL&FS and Reliance Capital. Historically, the EPFO maintained an 8.5% interest rate in 2019-20 and 2020-21 before cutting it to 8.1% in 2021-22, the lowest in four decades. The rate was slightly increased to 8.15% in 2022-23 before reaching 8.25% in 2023-24, a level now recommended for the current fiscal year.
The Ministry of Labour and Employment emphasized that the EPF remains an attractive investment option due to its high and stable returns. The interest earned on EPF deposits is tax-free up to a specified limit, further enhancing its appeal for salaried individuals. The Finance Ministry has previously raised concerns about the sustainability of high EPF interest rates, urging alignment with broader interest rate trends. However, the EPFO continues to offer among the highest returns compared to other fixed-income investment options.
In a significant policy change, the CBT has approved enhanced benefits under the Employees’ Deposit Linked Insurance (EDLI) scheme. Now, a minimum life insurance benefit of Rs 50,000 will be provided in cases where an EPF member passes away without completing one year of continuous service. Additionally, members who die after a non-contributory period will also be eligible for insurance, provided their name has not been removed from company records. This modification is expected to benefit over 14,000 cases annually, ensuring greater financial security for families of deceased EPF members.
