EPF Interest Rate To Be Increased To 10 Per Cent? This Is What The Government Says

The Employees’ Provident Fund Organisation (EPFO) has submitted its recommendation to the finance ministry for approving a rate of interest of 8.25 per cent on EPF deposits. Once approved, the regulatory body will start crediting the interest to the subscribers’ accounts. However, in the meantime, the question of whether the government plans to raise EPF deposit rate to 10 per cent was raised in Lok Sabha by Parliamentarian Vijayakumar, Alias Vijay Vasanth. In response to this, the Minister of State for Labour and Employment, Shobha Karandlaje, gave a written reply, clarifying the government’s stance. 

The minister replied, “No representations have been received from labour unions by EPFO specifically seeking enhancement of the EPF interest rate up to 10 per cent.”

On the question of whether EPFO has conducted an actuarial analysis and how feasible it is to raise the interest rate to 10 per cent, the minister referred to the interest rates EPFO has suggested for the financial year 2025-26. “The rate of interest on EPF is recommended by the Central Board of Trustees (CBT), EPF, which is a tripartite body comprising representatives of the government, employers, and employees,” Karandlaje said. 

Incidentally, the Finance, Investment, and Audit Committee (FIAC), a sub-committee of the EPFO, is tasked with recommending the interest rates to the EPFO. Then the rates are discussed in the Central Board of Trustees (CBT) meeting. Once CBT approves it, it is sent to the Ministry of Finance for final approval. Only after the Finance Ministry’s approval can interest be credited to the subscribers’ EPF accounts.

The CBT manages the EPF funds and where to invest and how to distribute them. However, it also takes into consideration different factors before recommending the rate of interest. The factors that are considered include return from the EPF funds, inflation, other macro and micro economic factors, among others.   

The Minister further said in her reply: “The EPF interest rate declared by EPFO is based on the actual income earned by the Provident Fund corpus from its investments. As per Paragraph 60(4) of the EPF Scheme, 1952, the central government is required to ensure that there is no overdrawal on the Interest Account. Since the EPF interest rate is based on the actual income earned by the Provident Fund corpus, it is not comparable with any other variable.” 

Notably, the EPF investment is based on a prescriber pattern, according to which only up to 15 per cent of the fund can be invested in equities, and the remaining funds can go into debt instruments. In the case of equity-instruments, direct investment in stocks is not permitted, but investment through exchange-traded funds (ETFs) is allowed. 

EPF is an exempt-exempt-exempt (EEE) instrument for investment, interest, and withdrawal, respectively. It is mandatory for organisations employing 20 people or more to ensure their long-term financial security.