In News
- Recently, EPFO raised the interest rate on employees’ provident fund to 8.15% for FY23.
About:
- The decision for increase in the interest rate comes because of interest rate increases in the financial system following successive rate hikes by the Reserve Bank of India and a higher surplus with EPFO .
- In FY22, EPFO slashed the interest rate to a four-decade low of 8.10% from 8.5% in the previous year.
- The interest rate on employees’ provident fund (EPF) savings remains the highest in the small savings category and it will benefit more than 60 million subscribers of the Employees’ Provident Fund Organization (EPFO).
Retirement support in India
- Retirement support for organised workers is mainly through Employees’ Provident Funds Scheme 1952 (EPF) and Employees’ Pension Scheme 1995 (EPS)
- Employees’ Provident Funds Scheme 1952 (EPF)?
- EPF is the main scheme under the Employees’ Provident Funds and Miscellaneous Act, of 1952.
- This scheme aims to build a sufficient retirement corpus for an individual.
- The fund includes contributions from both employer and employee. Each of them has to contribute 12% of the employee’s basic salary (Basic + Dearness allowance) towards this fund every month.
- Once an individual retires, they receive the entire contribution(of both employee and employer) as a lump sum with interest(currently 8.10% p.a.). The rate of return earned is fixed. The interest earned is tax-free.
- Employees’ Pension Scheme 1995 (EPS) ?
- Employee Pension Scheme (EPS) is a social security scheme to provide employees in the organised sector with pension after the age of 58
- However, for a person to be eligible for the pension benefits, they must have at least ten years of service (it doesn’t have to be continuous).
- The pension contribution under EPS is not shared equally by employees and employers, unlike the EPF contribution.
- The employer and employee contribute 12% of the employee’s basic salary and DA towards the EPF scheme. The 12% contribution made by the employer is split into two ways:
- EPF Contribution: 3.67%
- EPS Contribution: 8.33%
- Apart from the above-mentioned contributions, the Government of India contributes 1.16% as well.
- Employees are not eligible to contribute to the scheme.
Source:LM
