The monthly average net addition to the EPF subscriber base was 6.54 lakh in 2019-20. But, owing to Covid-19 pandemic, EPF base shrank by 2.36 lakh in April 2020.
Others can also join the scheme voluntarily. An employee contributes 12% of the basic pay to EPF; her employer contributes 3.67% to the EPF and rest 8.33% towards the employees’ pension scheme (EPS).
Over 6.4 crore people working in the organised sector will get a competitive 8.5% return on their employees’ provident fund (EPF) deposits in 2020-21, the authority concerned announced on Thursday. The interest rate was same for 2019-20, which, though a seven-year low, was way higher than the returns small saver could get under any other fixed-income schemes.
Along with PPF and the Sukanya Samriddhi Account meant for parents of girl children, EPF is one fixed-income instrument that is completely tax-free under the exempt-exempt-exempt (EEE) regime. Of course, thanks to a proposal in the Union Budget FY22, effective April 1, 2021, the interest on employees’ contribution to EPF above Rs 2.5 lakh a year will be taxed at the marginal income tax rate; however, barely 1% of the EPF subscribers will be impacted by the decision.
After the 228th meeting of Central Board of Trustees of the Employees’ Provident Fund Organsiation (EPFO) held in Srinagar on Thursday under the chairmanship of labour minister Santosh Kumar Gangwar, KE Raghunathan, one of the trustees, said: “For the current year, EPFO’s total income from debt and equity is expected to be around Rs 70,300 crore… after paying out 8.5%, it will still have Rs 300 crore surplus.”
EPFO’s accumulated corpus now stands at over Rs 18 lakh crore. On an annual basis, it receives approximately Rs 1.3 lakh crore as subscription. The EPFO is permitted to invest its incremental accretions in debt and equity instruments in the ratio of 85:15. Since 2015, the EPFO has been investing in exchange-traded funds, to build up an equity portfolio and this has enabled it to fetch higher returns. It is hoping to increase the returns in 2021-22, pinning hopes on a rising market.
Over the years, the EPFO has been able to distribute higher income to its members, through various economic cycles with minimal credit risk, thanks to relatively high interest rates and compounding. “This is despite the fact that EPFO has consistently followed a conservative approach towards investment, putting highest emphasis on the safety and preservation of principal first approach. Risk appetite of EPFO is very low, since it involves investing poor man’s retirement savings also,” the labour ministry said in a statement. Like in 2019-20, the interest pay-out for 2020-21 will be cleared in one shot, officials said.
The finance ministry has been putting pressure on the labour peer to keep the RPF rate under check, apprehending that higher payouts would increase the chances of the EPFO defaulting, precipitating a liability to the exchequer. “The 8.5% rate definitely means very good returns for the subscribers under current circumstances,” said former chief provident fund commissioner KK Jalan.
The Employees’ Provident Fund & Miscellaneous Provisions Act, 1952, makes it mandatory for all establishments having 20 or more employees earning less than Rs 15,000 monthly wage to join the EPF scheme. Others can also join the scheme voluntarily. An employee contributes 12% of the basic pay to EPF; her employer contributes 3.67% to the EPF and rest 8.33% towards the employees’ pension scheme (EPS).
The monthly average net addition to the EPF subscriber base was 6.54 lakh in 2019-20. But, owing to Covid-19 pandemic, EPF base shrank by 2.36 lakh in April 2020. In recent months, the addition of new subscribers was robust, showing that jobs are returning; net addition was 12.54 lakh in December 2020.
Around 1.7 lakh establishments and 74 lakh members returned or newly joined the EPF scheme in April-October 2020, reflecting a gradual revival in economic activity. The number of contributing establishments and members to EPFO increased to 5.04 lakh and 4.58 crore respectively in October from the lows of 3.33 lakh and 3.84 crore in April, the lock-down month.
Subscribers, especially low-wage earners, have withdrawn huge amounts from EPF during the pandemic period. Between April-August last year, close to `40,000 crore was withdrawn, according to a statement made by the government in Parliament.
As part of the Pradhan Mantri Garib Kalyan Yojana (PMGKY) and Atmanirbhar Bharat, the governemnt took various measures including non-refundable Covid advance from the EPF by amending the EPF Scheme, 1952. Also, the Centre paid both the employers and employees’ total 24% share of contribution for six wage months from March to August 2020 for all establishments having up to 100 employees with 90% of such employees earning a monthly wage of less than Rs 15,000.