- Date : 07/06/2022
- Read: 2 mins
The Government has reduced the EPF rate for FY 2022 from 8.5% to 8.1%. But this is still better than the current 7.1% rate on PPF.
The Government of India has approved the EPF rate for Financial Year 2021-22 at 8.1%. It is lower by 40 basis points than the 8.5% rate for the last Financial Year, 2020-21. The 8.1% interest rate is the lowest in the last 40 years. Earlier, in 1977-78, the interest rate was 8.0%.
The Employee Provident Fund Organisation (EPFO) has around six crore members who regularly contribute a certain percentage of their monthly salary to the Employee Provident Fund (EPF) scheme. In March 2022, the EPFO decided to lower the rate to 8.1% for this financial year from 8.5% in the earlier year. The Labour Ministry had sent the rate proposal to the Central Government (Finance Ministry) for approval. Now that the Central Government has approved the 8.1% rate, the EPFO will start crediting the interest amount to the EPFO member accounts.
Also Read: Online EPF Transfer: A Step-By-Step Guide
The EPF rate cut can dent your retirement corpus
The EPF corpus is an important component of the overall retirement fund for many people. The reduction in interest rate will impact the accumulated corpus. Some people may have to review their financial plan to see how much this will impact their retirement goal and whether they need to make any changes in their asset allocation.
The EPFO will have to credit Rs. 76,000 crores as interest at the rate of 8.1% to members' accounts. After the interest credit, the EPFO will be left with Rs. 450 crores surplus. The EPFO invests the member contributions in debt and equity products in the 85:15% ratio.
History of EPF rates
Let us look at the EPF rates in the last twenty-two years since the start of the millennium.
For the complete history of EPF rates since inception, you can refer to the EPF India website.
8.1% EPF rate is still higher than other fixed-income products
While the interest rate has been lowered by 0.40% compared to last year, it is still better than the current interest rate on fixed deposits offered by banks and small savings schemes. Currently, most banks offer interest rates of 5% to 6% p.a. for one-year fixed deposits. The current interest rate (as of June 2022) on the Public Provident Fund is 7.1% p.a.