The Finance Ministry has given a gift to the 47.2 million Employees Provident Fund subscribers.The Ministry on Thursday cleared the proposal for paying 9.5 per cent interest on EPF deposits for 2010-11.
The proposal to raise the rate from 8.5 per cent to 9.5 per cent had come from the Central Board of Trustees of the Employees Provident Fund Organisation. It was initially opposed by the Finance Ministry.
Economic Affairs Secretary R Gopalan told Business Standard the Finance Ministry had approved the rate on a condition that EPFO would update the accounts of all subscribers in the next six months to ascertain the actual amount in the interest suspense account.
"If there is a shortfall after the updation, the rate will have to be reduced accordingly next year," he said. He added the labour ministry had agreed to this.
Welcoming the Finance Ministry's move, Samirendra Chatterjee, Central Provident Fund Commissioner, said there was no question of a shortfall. Otherwise, EPFO would not have proposed this rate, he said.
"The 9.5 per cent rate comes into force from Thursday itself. All settlements will now happen at this rate. EPF returns are the best now, as subscribers will get up to 13.6 per cent pre-tax returns (with tax benefits), with hundred per cent safety of capital," said Chatterjee.
This will end the war of words between the labour and finance ministries, at least for now.
CBT had decided to raise the rate on September 15 and sought the Finance Ministry's approval. The Ministry, in response, questioned the surplus projected by EPFO.
Finance Secretary Ashok Chawla, in his letter on January 11, said: "It may be recalled that the Ministry of Finance has been repeatedly pointing out the implications of such practice/arrangements being followed by EPFO while declaring the interest rate on EPF accumulations, which is not sustainable in the long run."
In its reply on January 28, the labour ministry said EPFO had enough funds in the surplus account to pay subscribers 9.5 per cent.
