The Finance Ministry has approved 8.5 percent interest rate on provident fund deposits for the year 2020-21. With this decision, more than 6 crore beneficiaries of Employees’ Provident Fund (EPFO) will get some happiness before Diwali. The retirement body will soon start crediting it to the beneficiary’s account.
The Central Board of Trustees of EPFO kept the interest rate on provident fund deposits unchanged at 8.5 per cent for the financial year 2020-21. The decision was taken in view of the high withdrawal and low contribution by the members during the COVID-19 pandemic. “The Central Board recommended credit of 8.50% annual interest rate on EPF accumulation in the accounts of members for the financial year 2020-21. The interest rate will be officially notified in the Government Gazette, after which the EPFO will credit the interest rate to the subscribers’ accounts,” the board said in a statement earlier in March.
The Labor Ministry will have to take approval from the Finance Ministry on the proposed interest rate. Earlier this month, top officials of the labor ministry met finance ministry officials and asked them to expedite the approvals.
EPFO board member and Bharatiya Mazdoor Sangh general secretary Virjesh Upadhyay earlier told Moneycontrol, “People should appreciate that the government has increased interest rates for 2020-21 despite the huge economic slowdown due to COVID-19. rate has been maintained.
At least 12 per cent of an employee’s basic salary and performance wages is mandatorily deducted as provident fund, while the employer contributes another 12 per cent.
Tax on EPF: How it works
In the Union Budget 2021, Finance Minister Nirmala Sitharaman announced that employee’s contribution will be taxed on interest above Rs 2.5 lakh annually, starting April 1. Tax free, said the finance minister. Later, the Finance Ministry raised the deposit limit in provident fund to ₹5 lakh per annum, for which interest would remain tax-free if there was no employer contribution.
Sitharaman said, “In order to rationalize tax exemption for income earned by high-income employees, it is proposed to limit tax exemption for interest income earned on employees’ contributions to various provident funds to an annual contribution of ₹ 2.5 lakh. ” Budget 2021.
Presently EPFO has more than 6 crore active members. The retirement body invests a percentage of its annual accumulation in equities and the rest in debt investments. It added 14.81 lakh net subscribers in August 2021, reflecting an increasing trend in net payrolls for the first five months of this fiscal.
The move will affect high income and high net worth individuals (HNIs). Any individual who earns more than ₹ 20.83 lakh per annum will get taxable interest on EPF contribution.
Gaurav Saraf, Partner, VPTP & Company, said, “It may be noted that the new provision only takes into account the contribution of the employees and not the total contribution to the fund during any year.”
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