Is Delayed PF Interest Credit a Loss to Subscribers?

1. Context

It’s not about the delay by just a month or two. In the recent past, we have seen a delay of 1+ years in receiving Provident Fund (PF) interest. For instance, for FY 2019-20 the PF interest was supposed to be paid on 31^st March 2020, but the beneficiaries (PF account holders) are still waiting in mid-April 2021 at the time of writing this article. A similar delay happened in FY 2018-19 as well. In this article, we’ll discuss whether there is a potential loss to millions of PF account holders because of the delay in interest payment or there is no loss at all as assumed by many people.

Here is a standard reply from EPFO (Employees Provident Fund Office) to the grievances raised on the interest payment delay:

Final Decision :
It is to inform you that your employer is delaying the submission of required documents to the EPFO office, hence the compilation of the annual accounting procedure not yet completed for your establishment. Once completed, interest will reflect in your passbook.

2. The Myth

If you think like many other people that government can’t cheat us, they pay the interest amount correctly even though there is a delay, then I don’t blame you. There are reasons to believe this myth. After all, for tax payment, if there is a delay in tax payment, tax filing, etc. the same government collects the money from taxpayers with interest for the delay with no mercy. However, the general belief about adjustments of delayed PF interest is far from the truth.

3. The Reality

First, every year the government is taking a few months after the due date for the approval process. This has become a trend now. On top of that, an additional delay is caused by incorrect bookkeeping by EPFO (Employees Provident Fund Office) and employers.

Any delay in interest payment is a permanent loss to the PF account holders and that loss will never be adjusted.

PF interest is calculated based on the monthly running balance and is paid annually. If there is a delay in interest payment, then the interest will be added to the monthly balance only from the month of actual interest credit. Any time difference between the intended interest payment month (31^st March of a year) and the actual interest payment month (~1 year later for FY2019-20) causes loss.

Therefore, if the PF interest is credited after a one-year delay, then you are not only losing interest on that expected interest credit amount for one year but actually losing compounded interest on that interest credit amount till the time you retire. Please note that any delay in interest payment is a permanent loss to the PF account holders and that loss will never be adjusted.

4. Illustration

Let us try to understand this with an example. Let’s consider the case of Mr. Akash, 32 years old as of 2019 and currently employed on a private farm with an annual salary of ₹8 lakh.

• 50% of his salary is the basic salary (₹4 lakh)
• He contributes 12% of basic salary towards PF with an equal contribution from the employer.
• Let us assume as of March 2019 end, his PF balance was ₹10 lakh.
• With an average annual salary increase of 5%, in March 2020, his PF balance would be ₹11,69,156 (includes 2019-20 PF contribution) with an interest credit of ₹88,156.
• At the time of retirement at age 60, his PF balance would be ₹2,50,09,305 (~ ₹2.5 crores).

For FY2019-20 they credited the PF interest to Mr. Akash after a 15-month delay in June 2021 instead of the actual date of March 2020. It means the intended PF interest amount of ₹88,156 is paid with a delay of 15 months. If we consider the interest of ₹ 88,156 at an 8.5% PF interest rate for 15 months, compounded annually, it would be ₹9,464. So, in June 2021, instead of paying ₹97,620, the EPFO is actually paying ₹88,156 (₹9,464 less) skipping the interest for the delayed period.

Now, consider ₹9,464 compounded annually at an 8.5% PF interest rate until Mr. Akash’s retirement at age 60 (for 32 years). The effective amount would be ₹92,920. Therefore, ₹92,920 is the effective loss Mr. Akash will suffer just by the delay in a single financial year. If the delay in interest payment continues in the future, the total estimated loss at the time of retirement would be approximately ₹30,00,000 (₹30 lakh).

Hers is the summary:

Particular	Value
Name	Mr. Akash
Age as of 2019	32
PF Balance as of March 2019	₹10,00,000
Annual Salary	₹8,00,000
Annual Basic Salary	₹4,00,000
Monthly Employee PF Contribution (12% of Basic Salary)	₹4,000
Monthly Employer PF Contribution (12% of Basic Salary) including EPS fund	₹4,000
Average Yearly Increase of Salary	5%
PF Annual Interest Rate	8.5%
PF Balance as of March 2020 (supposed to be)	₹11,69,156
Interest credit in March 2020 (supposed to be)	₹88,156
Actual Interest credit in July 2021 after 15 months delay	₹88,156
Interest credit in July 2021 (supposed to be)	₹97,620
Loss due to delay in interest credit	₹9,464
Effective Loss due to delay in a single year (compounded till retirement)	₹92,920
Total Estimated Loss of Mr. Akash at the time of Retirement assuming similar delays in future	~ ₹30,00,000 (₹30 lakh)
Estimated PF Balance at the time of Retirement (supposed to be)	~₹2.5 crore
Effective PF Balance at the time of Retirement considering above Loss	~₹2.2 crore

Considering the PF interest credit delay every year, you can guess by now that Mr. Akash is going to lose a huge amount of money from his retirement fund. The EPFO must do the following:

• Pay interest credit as per the schedule
• In case there is a delay because of no fault of PF account holder, pay the interest for the delayed period as well

Refer to this document to understand how the PF interest calculation actually works. If you need help to understand your PF balance at retirement, the loss incurred due to delay in interest credit write to [email protected].

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