Retirement fund body EPFO today announced to increase the rate of interest on Provident Fund deposits to 8.75 per cent for 2013-14, a decision that is set to bring cheer on the faces of around 5 crore EPFO subscribers.

"We have decided to recommend to the Government 8.75 per cent rate of interest for 2013-14 to its subscribers," Labour Minister Oscar Fernandes told reporters after a meeting of the EPFO trustees in New Delhi.

The Central Board of Trustees, which is EPFO?s apex decision-making body, approved the interest rate during a meeting today.

Sources said that the CBT decided to increase the interest rate from 8.5 per cent in the previous financial year (2012-13) to 8.75% in the current fiscal because the EPFO has no dearth of funds. The Finance Ministry will now vet the recommendation of the EPFO and after the approval from the Finance Ministry, the increased interest would be credited to the accounts of subscribers.

Experts maintain that the decision to hike interest rate has been taken in order to lure the voters ahead of the upcoming Lok Sabha polls. It is estimated that the EPFO has an income of Rs 20,796.96 crore in the current financial year and payment of interest at the rate of 8.5 per cent would need Rs 20,740 crore and still leave a surplus of Rs 56.96 crore with the EPFO.

"Payment of interest to the members is expenditure for the Trust (EPFO), which is to be met out of its earnings. Thus, the rate of interest should be commensurate with the total earnings of the Trust," the EPFO has said in its proposal to the trustees.