As a bonanza to over eight crore salaried workers, the EPFO has increased its interest rate for 2013-14 to 8.75%. This, in effect, means contributions to the EPF earn the highest interest compared to other tax-saving instruments like the PPF
The start of the New Year is also the time when the financial year starts drawing to a close. For many retail investors, it is also the time when they sit down to take stock of their finances and work out their tax-saving plans.
This year, small investors seem to have a number of options including inflation-indexed bonds, tax-free bonds, provident funds, savings certificates and fixed deposits. But with retail inflation at nearly 10 per cent, a thorough review of benefits and tax treatment is equally important to ensure that your money’s value is not eroded over time.
EPF’s High Interest Rate
On January 13, in a small bonanza to over eight crore salaried workers, the Employees’ Provident Fund Organisation (EPFO) increased its interest rate for 2013-14 by 25 basis points to 8.75 per cent from last fiscal’s 8.5 per cent return.
The increase may seem nominal, given that in previous years the interest rate on PF deposits has even touched 9.5 per cent, but the decision in effect means that contributions to the EPFO earn the highest interest compared to other instruments like the Public Provident Fund.
The 10-year National Savings Certificate is the only similar investment instrument to the EPF that offers a higher interest of 8.8 per cent in 2013-14. But interest on NSC is taxable after a period of five years. Up to five year, it is re-invested in the scheme and so is tax exempt.
“Keeping in view that interest rates of most small saving instruments like fixed deposits have remained largely stable, even a 25 basis point hike in the EPF rate should cheer the salaried class as it gives them some headroom in the current inflationary situation,” said Kuldip Kumar, executive director, PricewaterhouseCoopers.
What’s more, for over 56 lakh employees enrolled in around 3,000 exempt PF trusts, this is just the start — these trusts can declare an interest rate even higher than the EPFO’s 8.75 per cent in case they have surplus income to do so.
How the EPFO Works
So here’s the math. For salaried employees, employers deduct 24 per cent of basic wages that are capped at Rs 6,500 per month as contribution to the EPFO.