PF interest rate may increase to 8.95% this year

The Employees Provident Fund Organisation's (EPFO) finance panel has recommended an increase in the interest rates on statutory savings of over 50 million PF subscribers to 8.95 per cent for the current financial year, up from 8.75 per cent paid last year.

The central board of trustees of the EPFO is reported to have endorsed the proposal and is yet to get the finance ministry nod. The rate will, however, be lower than the highest return of 9.5 per cent pain in 2011, says the report.

The 8.95 per cent interest rate will translate into returns of nearly 12 per cent for the highest slab as withdrawals and interest earnings do not attract tax at the time of withdrawal.

The PF rate hike comes at a time when the government and the Reserve Bank of India (RBI) are looking at reducing deposit rates for banks to cut lending rates and push investment.

Since the finance ministry is also looking at lowering the interest rates on many small savings schemes by up to 50 basis points, the move to increase the interest rates on EPF deposits may result in a diversion of bank discounts or other small saving schemes.

The EPFO panel, however, says it has the resources to fund the proposed 8.95 per cent rate. It is also planning to convene a meeting of the central board of trustees headed by labour minister Bandaru Dattatreya at the earliest to ratify the proposed interest rate hike.