MASTER MIND FINNASSET: PPF, savings schemes interest rates reduced by 0.1% from April 1

Friday, March 29, 2013

PPF, savings schemes interest rates reduced by 0.1% from April 1

Millions of small savers and PPF account holders will earn less on their post office savings schemes, with the government deciding to reduce interest rates on them marginally by 0.10 per cent. The interest rate of Public Provident Fund (PPF) has been lowered from 8.8 per cent to 8.7 per cent with effect from April 1, 2013, said a Finance Ministry statement. However, the rates on savings deposit schemes and on fixed deposit of up to one year run by post offices has been kept unchanged at 4 per cent and 8.2 per cent, respectively. Further, Monthly Income Schemes (MIS) of 5 year maturity will earn an interest of 8.4 per cent.

The National Savings Certificates (NSC) having maturity of five and 10 years will now attract 8.5 per cent and 8.8 per cent interest respectively, down 0.10 per cent each. The interest rates would be applicable for the entire 2013-14 fiscal. The rate for senior citizens savings scheme (SCSS) will now stand at 9.2 per cent, down from 9.3 per cent. The revision in interest rates follows a decision taken by government last year to link the small savings returns with the market rate. The new rates are required to be announced at the beginning of a financial year. The decision is in line with the recommendations of Shyamala Gopinath Committee, which had suggested that returns should be in sync with market rates determined by the returns offered by other securities.

The PPF corpus is tax-free at all three stages. The investment is eligible for tax deduction under Section 80C. The interest earned is also tax-free, and so are withdrawals. The original draft Direct Taxes Code, introduced in 2010, had proposed withdrawal of tax benefit. Though it would have been with prospective effect and existing investments would have been exempt, there was strong opposition to the move. The revised draft DTC nixed the proposal. However, with P Chidambaram back as finance minister, the original DTC proposals may come back in some form. PPF interest rate reduced to 8.7% from April 1.

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