New Delhi: In a decision that evoked immediate uproar by the salaried and self-employed class, the government on Friday slashed the interest rates on public provident fund (PPF) from 8.7 per cent to 8.1 per cent, soon after retracting the unpopular proposal to partially tax withdrawals.
In the process, the interest rate for the national savings scheme was also reduced sharply from 8.5 per cent to 8.1 per cent, for Kisan Vikas Patra (KVP) from 8.7 per cent to 7.8 per cent and for five-year recurring deposit to 7.4 per cent from 8.4 per cent.
Even the girl child scheme Sukanya Samridhhi Account (SSA) was not spared. The cut: From 9.2 per cent to 8.6 per cent.
“The new rates will be effective from next fiscal (April 1, 2016). The interest will be calculated on quarterly basis,” A.K. Chauhan, joint director in National Savings Institute (NSI), told IANS.
According to him, the main reason for the downward revision was the two year yield on government securities (G-Sec) had gone down.
The interest rates for various small savings schemes were recalculated with reference to the G-Sec yields of equivalent maturity for the period December 2015-February 2016, and based on it, rates on various schemes for 2016-17’s first quarter have been notified.
According to the government, the quarterly revision of interest rates will ensure that the interest rates under small savings schemes are more dynamically related to current market rates, thereby enabling the banks to move their interest rates in line with current money market rates.
Chauhan said the total corpus of all small savings scheme was around Rs 300,000 crore. The net accretion this year was around Rs 65,000 crore till January 31.
The SSA has around 85 lakh accounts with a deposit of around Rs 3,500 crore, while the KVP corpus is over Rs 21,000 crore, Chauhan said.
Earlier, the government had proposed a tax on 60 per cent of the PPF corpus on maturity if it was not invested in annuities – that is schemes that fetch periodic returns.
Also proposed was a limit on monetary contributions of employers in provident fund to Rs 150,000 per annum for tax sops.
Both these were withdrawn.
The government also cut interest rates on other small savings term deposit schemes.
Interestingly the rate of interest on the Employees Provident Fund (EPF) is 8.8 per cent. (IANS)
