- For fiscal 2016-17, EPFO paid an interest of 8.65%
- PPF investors currently get an interest rate of 7.8%
- Rate of interest currently being offered on NSC is 7.8%
Here are five key savings schemes and the benefits that they offer:
Employee Provident fund (EPF) is meant for salaried employees. EPF is a compulsory retirement savings scheme for public as well as private sector employees. The Employees' Provident Fund Organisation (EPFO) under the Ministry of Labour and Employment supervises this fund.
1. Employee Provident Fund
The interest rate on EPF is decided by the EPFO board every year based on the weighted average return generated by the fund. For fiscal 2016-17, it paid an interest of 8.65 per cent.
The amount that you contribute towards your EPF will qualify for tax deduction under Section 80C of the Income Tax Act, subject to a maximum of Rs 1.50 lakh. The interest you earn on your EPF savings every year and the final maturity amount is exempt from tax.
Public Provident Fund (PPF) offers safety with attractive interest rates and returns that are fully exempted from tax. The minimum deposit in a PPF account in a financial year is Rs 500 and the maximum is Rs 1.5 lakh.
2. Public Provident Fund
Since April last year, interest rate on PPF and other small savings scheme are being recalibrated every quarter. Investors in PPF currently get an interest rate of 7.8 per cent.
PPF enjoys EEE or exempt, exempt, exempt status - contribution, interest and maturity proceeds all are tax free.
Fixed deposits (FD) are one of the most popular savings instrument available in the country. People still prefer to lock their investments in FDs due to their flexibility and liquidity. Fixed deposits, also known as term deposits, offer a fixed rate of interest for the entire tenure of their deposit.
3. Fixed Deposits
Rates of interest vary from bank to bank. For example, on a 1-year tenure of fixed deposit for less than Rs. 1 crore, State Bank of India (SBI), India's biggest lender, offers an interest rate of 6.25 per cent. But this is for usual FDs which do not give tax-saving benefits.
Interest income earned from bank fixed deposits is fully taxable, unlike savings bank account where one gets income tax exemption on interest earned up to Rs. 10,000 a year. In case of bank FDs, banks deduct tax at source (TDS) at the rate of 10 per cent if the interest income for the year is more than Rs. 10,000. TDS is calculated by checking the combined interest income of all branches of a particular bank.
Some banks also offer tax saving fixed deposits. The amount that you invest in these FDs qualifies for income tax exemption under section 80C. However, the interest that you earn from a tax-saving FD will be taxable.
The National Pension System (NPS) was launched on 1st January, 2004 with the objective of providing retirement income to all the citizens. NPS aims to institute pension reforms and to inculcate a habit of saving for retirement amongst the citizens, states the NPS website (See more details on NPS).
4. National Pension Scheme
"Considering that it provides greater choice over asset allocation, potential for return enhancement and the additional tax deduction of Rs 50,000 over and above the Rs 1.5 lakh that it offers, individual taxpayers, specifically the younger generation, should consider allocating more funds towards it," said Tarun Birani, Founder and CEO of TBNG Capital Advisors.