By Yogima Sharma | ET Bureau | 11 Feb, 2016, 07.00AM IST | Economic Times
NEW DELHI: The Employees’ Provident Fund Organisation is considering doling out a Rs 750 crore bonus to its subscribers for 2015-16 instead of raising the interest rate, a first of its kind move that could translate into double-digit returns for crores of workers on their retirement funds.
EPFO had earlier proposed raising the interest rate to 8.95% in the current fiscal year, compared with 8.75% in 2013-15 and 2014-15, based on its earnings estimate for the year.
The proposal had met with some resistance from the finance ministry as it would put pressure on it to raise interest rates on small savings schemes and would not be sustainable going forward. Therefore, the retirement fund body that manages the savings of more than 5 crore organized sector workers is considering a onetime bonus payment.
“We are considering the option of bonus for the first time because this would substantially benefit people in the low income bracket who are otherwise not entitled for an income tax exemption for deductions under PF,” a senior government official, who is privy to the proposal, told ET. Only those subscribers who have contributed for 12 months in a row would be eligible for the bonus. As per EPFO’s internal estimate, around half its subscribers would get bonus this year if the proposal went through with this condition.
“In a way we are introducing differential interest rate for our subscribers under which low income people would get double-digit interest rate for their deposits in the current fiscal (year),” the official said, speaking on the condition of anonymity.
The February 16 meeting of EPFO’s Central Board of Trustees – it includes representatives of the government, employees and employers – would weigh both options (bonus payout and an increase in interest rate) and will make a final decision.
To become effective, it will then have to be notified by the finance ministry. The proposal of differential interest rate, however, is likely to face stiff opposition from trade unions including RSS-affiliate Bhartiya Mazdoor Sangh.
“We don’t appreciate the idea because it is only benefiting a few and not all EPFO subscribers. What they propose to distribute as bonus is the surplus income from the contribution of all employees and hence it should be equally distributed,” Vrijesh Upadhya of BMS said.
EPFO provides the interest from the returns on investments it makes, without any assistance from the government. So, workers’ representative are of the view that there is no difficulty in providing a higher rate of interest for the current fiscal year.
Source : http://goo.gl/1FWWIq