To help companies that may have faced cash constraints due to the nationwide lockdown or the COVID-19 outbreak, the Employees' Provident Fund Organisation (EPFO) had allowed companies to delay their contributions towards EPF (Employees' Provident Fund) account of their employees. Companies were allowed to file electronic challan cum return (ECR) for the month of March and pay statutory EPF contribution separately.
What do pre-COVID EPF rules say?
In a general scenario, EPF scheme rules require employers to deposit EPF contributions within 15 days from the close of every month.
Once the deposit has been made in 15 days, the interest accrual on the said contribution will begin from the first day of the following month. For example, the due date for making a contribution for July 2020 will be 15 August 2020 and the interest will start accruing from 1 September.
For March, the due date for making the deposit was 15 April, however, this due date was extended to 15 May 2020 amid the pandemic.
If the deposit has not been made by the employer by 15 May 2020, then the employer will be liable to penal interest at the rate of 12 percent per annum.
What happens to interest earned on EPF accounts due to delay in deposits?
According to an Economic Times report citing EPFO sources, the EPFO credits interest on contribution received in member's account on due basis. Also, since the grace period was allowed to employers for payment of contributions for March, if the contribution has been made by 15 May, interest will be due on such contributions from 1 May 2020 on due-basis and calculated accordingly.
This would mean that the grace period allowed to employers will not result in loss of interest on EPF account to employees.
If your employer makes the contribution due for March by 15 May, the interest on such deposit will start accruing from 1 June 2020.
However, the director of People Advisory Services, EY India told Economic Times that delay and non-payment of contribution vary. He said that even if an employer were to delay deposit of the EPF contribution for April 2020, the employee would still receive interest from 1 June 2020. But, if the employer defaults payment, that is, does not make a deposit at all, there will be no interest earned for the period as the EPF account was not credited in the said period.
Meanwhile, the accumulated balance of the EPF account will continue to earn interest.