Over 4 crore EPFO subscribers may get a lower interest at a rate of 8.6 per cent on their PF deposits for current financial year as Labour Ministry is expected to toe the Finance Ministry line to cut the rate.
Employees Provident Fund Organisation (EPFO) had provided 8.8 per cent rate of interest on EPF deposits for 2015-16 despite Finance Ministry's ratification for 8.7 per cent.
Finance Ministry has been nudging Labour Ministry to keep interest rate on EPF in line with other small savings schemes administered by it. There is a broad consensus between the two ministries to fix 8.6 per cent interest for this fiscal," a source privy to the development said.
The source further said that EPFO has not worked out the income projection for the current fiscal. The Central Board of Trustees (CBT), EPFO's apex decision making body, takes a call on interest rate on the basis of income projection.
The Board fixes the rate of interest for a financial year and it is approved by its advisory body Finance, Audit and Investment Committee (FAIC).
As per the practice, Finance Ministry gives concurrence to the rate of interest fixed by the CBT considering the income projections of a year. After its ratification, the interest rate is notified and credited into the accounts of subscribers.
An official said, "Finance Ministry's concurrence is required to ensure that EPFO's payout does not exceed its income and the body meets the fund requirement from its own resources."
"Finance Ministry wants to bring interest rate to 8.6 per cent for its small savings schemes like Public Provident Fund (PPF) in view of depleting yield of government securities and other saving instruments in the market."
Trade unions have been of consistent view that Finance Ministry should not encroach on the decision of CBT as EPF is workers' money and they get interest from the income earned on investments of their funds.
In the last fiscal, EPFO was in a position to provide 8.95 per cent rate of interest on the basis of its income projection and it would have left Rs 100 crore surplus.
However, the CBT chose to fix 8.8 per cent interest on EPF for last fiscal which was further reduced by Finance Ministry to 8.7 per cent. Facing stiff opposition from all corners, government accepted CBT's decision of 8.8 per cent interest on EPF for 2015-16.
The EPFO had provided 8.75 per cent rate of interest in 2013-14 and 2014-15, which was higher than 8.5 per cent in 2012-13 and 8.25 per cent in 2011-12.