The Employees’ Provident Fund Organisation (EPFO)—the retirement fund body—is likely to announce the rate of interest on employees' provident fund (EPF) deposits for the financial year 2020-21 today. Speculation is rife that EPFO may cut interest on EPF for this fiscal (2020-21), from the current 8.5 percent.

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This may come on the back of large withdrawals and fewer contributions being made amid the coronavirus pandemic, experts suggest.

"This is expected to have a cascading effect on the returns from EPF," believes Abhinav Angirish, founder of Investonline.in.

When the lockdown due to the coronavirus outbreak was imposed in March, the EPFO had allowed the subscribers to make a partial withdrawal, or 'advance' withdrawal of up to 75 percent of balance or three months' wages, whichever is lower, as non-refundable advance from their PF corpus.

Also read: EPF rates likely to go down; should VPF investors look for alternatives?

As per reports, the retirement fund body settled 56.79 lakh COVID-19 non-refundable advance claims and disbursed Rs 14,310 crore till December 31, 2020.

Last year, in March, EPFO had lowered the interest rate on provident fund deposits to a seven-year low of 8.5 percent for 2019-20, from 8.65 percent in 2018-19. The EPF interest rate provided for 2019-20 was the lowest since 2012-13 when it was 8.5 percent, according to news agency Press Trust of India (PTI).

The EPFO had provided an 8.65 percent interest rate to its subscribers for 2016-17, and 8.55 percent in 2017-18. The rate of interest was slightly higher at 8.8 percent in 2015-16.

Meanwhile, Budget 2021 has proposed to restrict tax exemption for interest income earned on employees’ contribution to various provident funds to the annual contribution of Rs 2.5 lakh from April 1, 2021. This simply means that interest earned on the annual EPF above Rs 2.5 lakh will be taxable.

According to Aarti Raote, Partner, Deloitte India, the budget change will mostly impact HNI's drawing a high salary.

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(Edited by : Ajay Vaishnav)