3 reasons why you may earn a lower return from EPF this year

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Employees Provident Fund Organization (EPFO) has declared the rate on provident fund balance. For the financial year 2019-20, the interest rate on EPF is going to be 8.50 percent. The new PF interest rate 2020 will now be notified by the government, as the decision has been taken by the central board of trustees.

Interest rate. Both employers are employees who are allowed to contribute only 10% to EPF each month from May to July if they need to. Both employees and employers can continue with a 12% contribution, as the decision was taken on 22 May by EPF Organization (EPFO).

The EPF interest rate was expected to come back because of the rate coming down in the economy. It is also expected that the rate of interest on post office small savings schemes will be lowered from April 1, 2020. 

1. 3 months cut in statutory EPF contribution

The government has announced a discount within the statutory EPF contribution requirement from 24% (12% employee and 12% employer) for the subsequent three months. A lower contribution will result in a lower retirement corpus. Since EPFO relies heavily on compounding to come with an outsized sum over time, this will lead to a rise in-hand salary.

2. No penalty for delay in EPF deposits

The economic activities of the country are struggling as the country is under lockdown due to Covid19. EPFO has removed the penalty for delay in EPF deposits by employers as normal business functions are lacking. This penalty ensured that the contributions are deposited in time which made it easier for the EPFO to manage the investments made on behalf of the fund.

3. EPF interest rate likely to fall further

Given the falling interest rate scenario within the country where the Reserve Bank of India (RBI) has been cutting repo rate daily, it is unlikely for the EPFO to keep up an 8.5% interest rate for this financial year too. Already, the government has slashed interest rates for small savings schemes like Public Provident Fund (PPF) to 7.1%, National Savings Certificate (NSC) to 6.8%.

The Covid19 affecting the economy and its impact on employees like layoff and lower return on EPF.