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Friday, March 16, 2012

Bad News for Salaried Class - Employee Provident Fund Rate of Interest Reduced


Yesterday, just a day before the Union Budget is to be presented in the Parliament, the Union Finance Minister dropped a bomb-shell on the Salaried Class of India.

What is that Bomb Shell?

Our Finance Minister has proposed/approved a 1.25% rate cut on the Interest offered on EPF deposits. For now on, the rate of interest will be 8.25% instead of the 9.5% that was offered so far.


How does this affect us?

Employee Provident Fund (EPF) is one of the main (if not only) sources of funds for retirement for a majority of the working/salaried class of India. So, a rate cut here means, millions of Indias salaried people are going to be adversely affected. A rough estimate puts around 5 crore or more workers throughout India will be affected by this Rate Cut.

What is Next?

Frankly speaking, only God Knows. Lets Hope & Pray that, this rate cut is scrapped or atleast partially scrapped to benefit the millions of middle class India's who depend entirely on their EPF savings for Retirement.

7 comments:

  1. Why did the government do such a rate cut? what is the benefit for them?

    ReplyDelete
  2. FM is mentally challenged. They are deliberately targeting salaried class.

    ReplyDelete
  3. @ Manikandan

    The Government pays the Interest on the EPF deposit collected by the PF department. So assuming there are 5 crore salaried individuals who have their PF Accounts with say Rs. 25,000/- in it. In that case, the Interest our government has to pay works out to more than 1 lakh crores.

    This 25000 per account is a very small number. The actual amount will be much higher which means the government pays much much higher amount as interest.

    That is why they are trying to reduce the interest.

    ReplyDelete
  4. @ Anand VijayaKumar

    How do you think banks offer 9.5 - 10 % rate of interest? Obviously they use our money and invest it further to reap higher profits and pass on certain % to the investor (ofcourse i understand its taxable so net % will come down automatically). I am sure govt. will also be doing something similar unless you can point something different. Does that mean govt. is inefficient in investing the money?

    ReplyDelete
  5. @ Anand VijayaKumar

    How do you think banks offer 9.5 - 10 % rate of interest? Obviously they use our money and invest it further to reap higher profits and pass on certain % to the investor (ofcourse i understand its taxable so net % will come down automatically). I am sure govt. will also be doing something similar unless you can point something different. Does that mean govt. is inefficient in investing the money?

    ReplyDelete
  6. @ Anand K

    You are 100% right. Banks use that deposit money to grant loans to other customers (home loan, car loan, personal loan etc).

    However, the Government does not grant loans to anyone. They only finance development projects throughout the country. The only income they have are "Income Tax and other Taxes".

    So, practically speaking, they are paying the interest on our PF accounts from their pocket. That is why they cannot afford to pay such hefty rate of interest.

    Anand

    ReplyDelete
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