As the Central Board of Trustees (CBT) of the Employees’ Provident Fund Organisation slashed the interest rate for 2017-18 to 8.55% from earlier 8.65%, interest rate of the Employee Provident Fund (EPF), which stood at 8.80% mark in FY16, has now come down to a five-year low for FY18.


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The rate cut decision took place because the retirement fund body was expected to maintain the rate as it had earlier sold a portion of its investments in exchange-traded funds (ETF) worth Rs 2,886 crores.
 
The retirment body, however, is confident of adding another 3 crore subscriber base to it. So far, the EPFO has invested about 15% of its incremental income in ETFs valuing up to Rs 44,000 crore.
 
The move is likely to affect nearly six crore subscribers and leave EPFO with a surplus of Rs 586 crore against Rs 695 crore in the previous fiscal year.
 
Let us try to understand other retirement-related schemes of the government which we should first compare with other plans before making any investment.
 
Employee Provident Fund
 
This one is the most popular saving scheme for retirement as the amount at maturity and the interest earned are tax-free. The aim is to build a corpus for retirement through regular, monthly contributions made by employees and their employer.
 
Recent introduction of the Universal Account Number (UAN) has made accessibility of the EPF account easier.
 
Contributions made towards EPF are tax deductible u/s 80C of the Income Tax Act, 1956. A total of Rs 1,50,000 can be claimed under this section. It has interest rate of 8.55% for FY18, and is mostly considered as long-term investment goals.
 
Minimum contribution is now set at 12% of Rs 15,000 which is Rs 1,800, thus Rs 1,800 from the employee and Rs 1,800 from the employer.
 
National Saving Certificate
 
Anyone looking for a safe investment avenue to save taxes can opt for NSC. We can get these certificates from any branch of postal service.
 
There is no maximum limit for purchase under this scheme, however, investment made up to Rs 1.5 lakh can earn tax break under section 80C of the IT Act. Also, no TDS is levied on NSC payouts, as it is subscriber’s responsibility to pay the applicable tax on it.
 
You can stay invested in this scheme for a maturity period of 5 years from the date of purchase, and attract up to 7.6% of interest rate.
 
Interest earned on NSCs are based on the type of certificate bought, but it is calculated on the yearly basis. Interest can be tax-free except the ones earned in the last year of maturity.
 
Earlier, there were two types of certificates in NSC namely NSC VIII Issue and NSC IX Issue. However, NSC IX Issue was discontinued in December 2015, therefore, subscription is only available for NSC VIII Issue.


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