Contributions to EPF are mandatory for salaried employees. Employers are also required to make a matching contribution to the EPF account of the employee.
As the interest rates go up across deposits and financial products, returns on contributions to the Employees' Provident Fund have become attractive too, especially after the government decided to do away with the long-term capital gains tax benefits on debt mutual funds from FY24.
On Tuesday, the Employees' Provident Fund Organisation (EPFO) increased the interest rates on EPF deposits to 8.15 per cent for FY 2022-23 from 8.10 per cent in the previous fiscal year.
In its meeting, the Central Board of Trustees of the EPFO recommended an annual 8.15 per cent interest rate to be credited to EPF members for FY2022-23. The CBT, the apex decision-making body of the EPFO, is headed by the Union Labour and Employment Minister.
The decision is subject to the finance ministry’s approval. The new rate will also apply to Voluntary Provident Fund (VPF) deposits.
“The CBT recommended the amount balancing both growth and surplus fund to have safeguards. The interest rate of 8.15 per cent safeguards the surplus and guarantees increased income to members. In fact, the rate of interest at 8.15 per cent and the surplus of Rs 663.91 crores are higher than the last year,” the said in a release.
It added that EPFO could distribute higher income to its members through the various economic cycles with minimal credit risk.
“Considering the credit profile of the EPFO investment, the interest rate of EPFO is higher than other comparable investments avenues available for subscribers,” it said.
“A blend of conservative yet progressive approach of investment followed by EPFO has made it a wise option for PF members,” the ministry added.
Employment Provident Fund
Contributions to EPF are mandatory for salaried employees. Employers are also required to make a matching contribution to the EPF account of the employee. Employees contribute 12 per cent of their wages to their EPF accounts.
But in the case of the employers’ contributions, 3.67 per cent of employer’s contribution is deposited to the EPF account and the balance 8.33 per cent goes towards the Employees Pension Scheme (EPS).
If the total deposits in an EPF and VPF account exceed Rs 2.5 lakh in a financial year, interest earned will be taxable. On March 13, 2023m, EPFO extended the deadline for submitting higher pension applications until May 3, 2023. In a previous circular, it also published the rules and procedures for applying for a higher pension under EPS.