The Employees’ Provident Fund Organisation (EPFO) allowed companies to delay the deposit of EPF contributions into the accounts of employees for the month of March, 2020. The EPFO allowed companies to file electronic challan cum return (ECR) and pay statutory EPF contribution for March separately. This step was taken to reduce the compliance burden on establishments facing cash crunch due to the coronavirus pandemic.
Here is a look at what this means for EPF subscribers and more importantly, what happens to the interest earned on EPF accounts due to this delay in deposit of the employer’s contribution to EPF of employees.
What was announced by EPFO?
In April 2020, the EPFO announced that ECR could be filed by an employer without the simultaneous payment of EPF contributions and the contributions can be paid later (as per the relaxation announced) by the employer after the filing of ECR.
Puneet Gupta, Director, People Advisory Services, EY India explains what this means: “Under the EPF Scheme, an employer is required to deposit EPF contributions within 15 days from the close of every month. For example, for the month of May 2020, the EPF contributions are required to be deposited by June 15. The EPFO extended the due date for depositing EPF contributions for the month of March 2020. The due date for depositing money into EPF accounts for the month of March 2020 was extended to May 15, 2020, from the normal deadline of April 15, 2020. If the deposit is not made into EPF accounts by May 15, 2020, then the employer will be liable to penal interest at the rate of 12 per cent per annum.”
What happens to the interest earned on EPF accounts?
Since employers were allowed to delay the deposit of EPF contributions for the month of March, will this have a negative impact on the interest due on the employees’ EPF amount?
As per official EPFO sources, “The EPFO credits interest on contribution received in member’s account on due basis. Further, the grace period was allowed to employers for payment of contributions for the wage month March 2020. Interest is due to a member from the fund on a due basis as per Para 60 of the scheme. If the contribution for March 2020 was paid on May 15, 2020, interest is due on such contributions for wage month March 2020 from May 1, 2020, on the due basis and calculated accordingly.”
Simply put, a delay in EPF contribution by an employer as per the relaxation allowed due to the pandemic, will not mean loss of interest earned for the employees.
How is interest on EPF account balance calculated?
Gupta explains how interest on an employee’s EPF account balance is calculated: “Under the EPF scheme, for the month of April 2020, the employer has to deposit EPF contributions by May 15, 2020. Once the money has been deposited into the account by the employer, the interest accrual on the said contribution will start from June 1, 2020.”
What if the EPF contribution is not made by an employer?
The rules for delay in EPF contribution by the employer and non-deposit of contribution are different.
Gupta says, “Even if an employer makes a delayed deposit of EPF contribution for April 2020, the employee will still receive interest from June 1, 2020. Whereas if the employer defaults in deposit of EPF contributions due to financial or other issues, and does not make a deposit at all then as there is no credit in employee’s account for the said period, there will be no interest on contributions due for the said period. However, on accumulated balance it will continue.”