Panel for at least 0.5% cut in EPF rate

The recommendation of the sub-committee of central board of trustees of EPFO, comes in the wake of one per cent cut in interest rates to 8 per cent in special deposits scheme, which comprise over 80 per cent of the Rs 1,40,000 crore EPFO corpus and a general lowering of bank rates.

According to sources in labour ministry, the government is likely to align the EPF rate to the returns on investment and given the fact that returns would go down after the cut in SDS rates, EPF rate is also likely to go down.

After the CBT meeting scheduled for the end of this month, the proposal would be forwarded to the finance ministry and finally the government would take a decision, sources said.

The meeting on Thursday took into consideration various interest slabs and calculated the surplus and deficit on its interest suspense account accordingly. The sub-committee found that a marginal 0.5 per cent cut to 9.0 per cent interest rate would get CBT into problems with a deficit of Rs 105.18 crore since the liabilties would be Rs 5,819.23 crore and income of Rs 5714.05 crore. If the CBT had to pay only 8.5 per cent (which means one per cent reduction), then the EPFO could earn a surplus of Rs 218.98 crore as the liabilties would be Rs 5495.94 crore with the same income of Rs 5714.05 crore.

The highest surplus of Rs 541.4 crore would accrue to the EPFO if it paid only 8 per cent (or 1.5 per cent reduction from the present rate), as the liabilties would be Rs 5,172.65 crore and the income being Rs 5714.05 crore. The finance ministry has been pressing for a cut in the EPF interest rate to align the rate with the falling interest rates. The labour minister has been opposing the cut for some time, but with the EPFO’s panel suggesting a cut it is likely that the labour minister would accept the impending cut, sources said.