EPFO Confirms Payment of 8.5% Interest in Two Instalments

The Employees’ Provident Fund Office (EPFO) announced that it would pay 8.5% interest to the subscribers for the financial year that ended on 31 March 2020 as promised—8.15% from debt investments and 0.35% from equity investments. EPFO also stated that the interest would be paid in two instalments.

The debt income of 8.15% and the gains of 0.35% from the sale of ETFs will be subject to their redemption by 31 December 2020. However, the meaning of ‘subject to redemption’ was not clearly defined. 

Currently, the debt investment returns of Rs.58,000 crore are at hand, but the equity gains are yet to be realised. The sinking market conditions due to COVID-19 have made it unfavourable for the sale of ETFs as planned in March 2020. 

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Though the announcement of the interest rate, 8.5%, was made in March 2020, there were speculations that the EPFO cannot pay the said interest rate due to all the deposit withdrawals made during the lockdown period. However, the organisation has again confirmed that they will be paying the interest rate as stated prior. 

However, there is an opinion that you can expect an uncertainty of 0.35% as the ETF sale will happen when the market conditions look relatively better. Also, EPFO officials mentioned that the current market situation had led the organisation to go for two instalments. Nonetheless, there has been no proposal on how the organisation is going to keep up its word if the market meltdown continues.

EPFO stated that the board has recommended that the capital gains earned by selling ETFs will be marked as an exceptional case in the income of FY2019-20. Any sale proceeds that happen until 31 December 2020 will be credited to the earnings of FY2019-20, which is unlike the general practice.

For any clarifications/feedback on the topic, please contact the writer at apoorva.n@cleartax.in