Profit/Interest on GPF

Question ID: 17315

Assalamu Alaikum,
My question is regarding General Provident Fund (GPF) of the Government of our country. As per government rules, a government servant has to pay compulsorily a certain portion (say 10%) of Basic salary to the GPF monthly.That is the Government deducts the money from monthly salary of the employee. The Government keeps account of deposit and informs the employee annually by giving a statement about the deposit of the year and also cumulative balance and imposes interest/ increment on the balance at a higher rate on annual basis. At the retirement stage of the employee, the government pays the total deposit amount including interest/increment accrued in the fund. The fund lies with the Government and the employee has nothing to do with it. However, an employee can take loan against his deposit in the fund by applying to the Government on certain circumstances on condition of repaying the loan with interest amount in several monthly installments. In GPF Rules the term increment is added for giving an ‘or’ to interest (like interest/increment).
So far I know, the Government does not invest the deducted amount anywhere and actually pays monthly the after- deduction amount as salary to the employees. At the retirement stage of the employee, the government pays the total amount of balance in the fund to the employee from its Annual Budget allocation.
Question No. 1.
I heard , some say that the interest/increment amount in GPF, given by the government is not Riba but it is a bonus to the employees. On the other hand, others say it is Riba and Haram. What is the correct decision regarding this, considering the above position of GPF?
Question No. 2.
The rate of contribution by employee has no upper limit. So some employees contribute more than the compulsorily required amount according to their solvency. Hence they get increased amount of profit/ interest for the deposit. If profit/ interest for GPF is not considered as Riba, is there any objection according to Islam for contributing in GPF more than the compulsory amount?

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Asked on September 9, 2015 7:47 am
Private answer

1) It is interest.
2) Do not contribute extra.

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Answered on September 16, 2015 8:45 pm