EPF Interest Rate For FY20 Could Be Revised Lower To 8.1%: Report

On Thursday, a CNBC TV-18 report citing sources said the interest on Employees' Provident Fund or EPF could be cut to 8.1 percent versus 8.5 percent (earlier declared in March) for the financial year 2019-20 due to liquidity constraints.

"EPFO income has been impacted on the inability to sell investments due to market volatility. Also, liquidity strained can be seen on higher payouts, lower contributions during COVID-19," the report quoted sources saying. It also said the EPFO board is set to meet to discuss the same.

In the first week of March, the EPFO Board had proposed 8.5 percent rate for FY20, however, it has not yet been approved by the finance ministry yet. The interest rate was declared in the pre-COVID period, before the Finance Ministry approved EPF related relaxations as part of its COVID-19 stimulus package.

The mandatory provident fund contribution was permitted to be lowered from 12 percent to 10 percent of basic pay for employees and employers for a period of three months. The government also said that it pay the employers' share of the contribution for certain categories of workers for six months. Companies were also given more time to contribute their share to the retirement savings of employees.

EPF subscribers were also allowed to make non-refundable withdrawals of three months of basic salary or 75 percent of their total contribution to their provident fund as COVID-19 relief amid cash crunch due to the lockdown.

These measures have lowered cash inflows into the scheme and stock market volatility has also impacted returns on investments. EPFO invests 85 percent of funds in debt instruments and 15 percent in exchange-traded funds (ETFs).