After slashing the interest rate for FY20 to 8.5 per cent, the labour ministry’s EPFO has now announced that it will pay it in two tranches, citing “exceptional circumstances” arising due to the novel coronavirus pandemic.
The total 8.5 per cent PF interest for the year 2019-20 will be payable in two tranches — 8.15 per cent will be cleared immediately from its debt income and the 0.35 per cent linked to equity investments before December 31. (Photo: Reuters)
The Employees Provided fund Organisation (EPFO) on Wednesday announced that it will pay 8.15 per cent interest to its subscribers for 2019-20 immediately and the remaining 0.35 per cent — linked to equity investments — will be cleared before December 31.
It may be noted that the EPFO had earlier slashed the interest rate on Employee Provident Fund (EPF) savings to 8.5 per cent for FY20 — the lowest rate in seven years.
However, the retirement body’s Central Board of Trustees has now recommended splitting the interest payments on EPF accounts into two parts due to “exceptional circumstances” arising due to the novel coronavirus pandemic.
The labour ministry’s proposal will now of the interest rate payment will now be sent to the finance ministry for final approval.
“In view of exceptional circumstances arising out of Covid-19, the agenda regarding interest rate was reviewed by the central board and it recommended the 8.5 per cent rate to the central government,” said the labour ministry in a statement.
“It would comprise 8.15 per cent from debt income and balance 0.35 per cent (capital gains) from the sale of ETFs (exchange-traded funds), subject to their redemption by December 31.”
Simply put, the total interest for the year 2019-20 will be payable in two tranches — 8.15 per cent will be cleared immediately from its debt income and the 0.35 per cent linked to equity investments before December 31.
However, there is a catch with the 0.35 per cent. The labour ministry-controlled EPFO said the remaining balance of 0.35 per cent will be paid from the sale of ETFs or exchange traded funds, subject to their redemption by December 31, 2020.
The statement clearly indicates that the 0.35 per cent interest payment is “subject to redemption” which means the 0.35 per cent will be paid if the EPFO is able to redeem its equity investments of nearly Rs 2,800 crore.
In a scenario where the EPFO is unable to clear the remainder by December, the 8.15 per cent interest will be the lowest payout to the fund’s subscribers since 1977-78 when it had paid interest of 8 per cent.