Explained: Why the interest credit to your EPF account gets delayed every year

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Employees’ Provident Fund Organisation’s (EPFO’s) Diwali gift for its members – over 60 million employees in India – is here. The finance ministry has ratified the interest rate of 8.5 percent, which EPFO’s central board of trustees had approved in March, for the financial year 2020-21.

Though the announcement was made before Diwali, it could be a while – two weeks as per reports – for the interest amount to be credited to your EPF account. A Diwali ‘gift’ ought to make people happy, but the fact is that the delay tends to cause heartburn amongst employees year after year. A cursory glance at the timeline of EPFO’s twitter handle (@socialepfo) shows multiple complaints on the delay every year. In times of advanced fintech tools and automated payouts, it is surprising that the interest for the previous financial year is credited later than half way into the current financial year.

The reason? A long-winding bureaucratic process and time-consuming paperwork. The central board of trustees meets in March to announce the interest rate for the financial year, and the proposal is then forwarded to the finance ministry for ratification. Once the approval comes through, the labour ministry notifies the interest rate and the process of crediting interest into accounts begins. “The lag in ratification this year is because of the delay on the part of the labour ministry in forwarding the required documents to us,” a finance ministry official told Moneycontrol on condition of anonymity. “The interest credit to PF accounts is a big cash flow for the central government, and the finance ministry holds the arrangement for validating the submitted data, allocating the required funds and other procedural arrangements before crediting the interest to the members’ account,” says Prashant Singh, Vice-president and Business Head-CPO, Teamlease Services.

Now, interest credit for India Post small savings accounts – savings, senior citizens’ saving schemes, Sukanya Samriddhi account, public provident fund and so on – is not such a cumbersome process. The finance ministry approves interest rates every year for each quarter, which is credited to accounts as scheduled, without any delay. But the delay in the case of EPF interest is a recurring feature. “There is not much information available on the reason for the delay.  One possible reason is the due diligence that the Finance ministry may require from labour ministry given that the provident fund rate is much higher than other savings schemes’ rates,” says Preeti Chandrashekhar, Business Leader, Retirement, Health and Benefits, Mercer India.

Many employees have been expressing their displeasure at the delay, only to receive this response from the EPFO handle: “Whenever the interest will be credited, it will be accumulated and paid in full. There would be no loss of interest. Please maintain patience.”

“In today’s day and age, ideally, there should not be any delay. Even in the banking system, there are crores of accounts, but all of them receive interest credit on time. So, even EPFO should be able to calculate interest on a regular basis and facilitate auto-credit,” says Amol Joshi, Founder, PlanRupee Financial Services. “If all other entities are able to manage seamless processing, there is no reason why EPFO cannot. There might be historical reasons for the delays, but with the current pace of technological advancements, the entire chain of approvals should be completed without any lag.” He believes that at best, there can be a lag of one month from the interest rate announcement for account finalisation. “The co-ordination between the two ministries and EPFO’s manual interest credit are responsible for the delays. The ratification by the finance ministry and the administrative process of crediting interest to employees’ accounts take time,” explains Singh.

Transparency and auto-transfers can ease the pain for employees. “A standard rate of interest should be declared at the beginning of the financial year. Interest should be credited to individual EPFO accounts at the end of every quarter. Also, there is a need for greater transparency by way of digitising the calculation of interest and auto-credit of interest to the members’ accounts,” says Singh. Joshi. He feels that with Aadhaar-seeding and PAN linkage, a key leg of digitisation, is already completed and it is time to move to auto-credit of interest like it is done in case of bank accounts.