The Employees' Provident Fund Organisation (EPFO) will pay a lower interest rate of 8.50% to the formal sector employees for the last fiscal year in a staggered manner due to the impact of the coronavirus pandemic.
The total payment would include 8.15 per cent interest rate from debt income and the balance 0.35 per cent from the sale of ETFs subject to their redemption by December 31, 2020, said an official statement.
This would be the lowest interest rate paid out since 2011-12, when an interest rate of 8.25% was paid.
The decision was at the meeting of EPFO's Central Board on Wednesday.
"In view of exceptional circumstances arising out of Covid-19, the agenda regarding interest rate was reviewed by the Central Board and it recommended the same rate at 8.50 per cent to the Central government. It would comprise of 8.15 per cent from debt income and balance 0.35 per cent (capital gain) from the sale of ETFs subject to their redemption by 31st December 2020," the Labour and Employment Ministry statement said.
“It further recommended to account such capital gains in the income of the financial year 2019-20 as being an exceptional case,” the statement added.
However, it is not yet known if ‘subject to redemption’ means that the pay-out of the second instalment of 0.35% is not certain. And if it fails to pay out this 0.35%, the pay-out of 8.15% only would be the lowest since 1977-78, where an interest rate of 8.0% was paid.
This comes as the EPFO’s earnings declined in March due to the pandemic.
According to reports, EPFO is likely to face a shortfall of Rs 2,500-2,700 crore after paying out the first instalment of 8.15%, which it would then meet through sale of ETFs.
In March, at its board meeting, the retirement body decided to cut the interest rate from 8.65% that it paid last year to 8.5% for FY20.
The Central Board also recommended to account such capital gains in the income of the financial year 2019-20 as being an exceptional case.
It also accorded approval for amendment of paragraph 22(3) of Employees' Deposit Linked Insurance Scheme, 1976 to enhance the maximum assurance benefit to Rs 7 lakh from the present maximum assurance benefit of Rs 6 lakh.
"This amendment will provide additional succour to families and dependents of members of the scheme in case of their unfortunate death while in service," it said.