The interest rate of EPF is the lowest in four decades. Recently, Finance Minister Nirmala Sitharaman told the interest rate of EPFO higher than other schemes. He said, “As of now the proposal to change the interest rate of EPFO has not come to the finance ministry. But the truth is that today the rates are running very low and the interest rate of EPFO is still higher than others.”
The interest rate of EPFO has been reduced to 8.1 percent for the financial year 2021-22. Earlier it was 8.5 per cent. By other schemes, the finance minister meant the interest rates of schemes falling under the Small Savings Scheme. These include PPF, Sukanya Samriddhi Yojana, Senior Citizens Saving Scheme (SCSS) and 10-year Fixed Deposit (FD) of SBI.
The Central Board of Trustees (CBT) of EPFO announces the interest rate every year. This is preceded by extensive negotiations. The proposal is then sent to the Finance Ministry. The interest is credited to the EPFO subscriber’s account after approval from the finance ministry. The interest rate for the financial year 2021-22 was announced on March 13.
This is the lowest interest rate of EPFO in the last 40 years. EPOFO’s 60 million subscribers are disappointed with the rate cut. Despite this, EPF and its associated VPF are very important for retirement planning. Here we are giving three reasons which prove that EPFO is still the best among other such schemes.
Contribution is mandatory in EPFO
The contribution of 12 per cent of the basic salary is mandatory for the subscribers of EPFO. You don’t have any choice for this. Every month this money is deducted from your salary with you. It is also good for those who contribute more amount in VPF, as its returns are higher than other schemes. There is also tax benefit as well.
Higher interest rate than other instruments
At present, the interest rate of EPFO is 8.1 percent. This is more than the post office small savings scheme and bank fixed deposits. However, the investment and returns in every fixed instrument are safer as compared to other schemes. But, the returns are relatively low. For example, the interest rate of Lokpriya Public Provident Fund among the masses is 7.1 per cent. The interest rate of Sukanya Samriddhi Yojana is 7.6%. State Bank of India’s 10-year fixed deposit has an interest rate of 5.5 per cent. The interest rate of the Senior Citizens Savings Scheme is 7.4%.
It has many tax benefits
Along with higher returns, EPFO also offers various tax benefits. In this, investment, accumulation and maturity are exempted from tax. In this, tax exemption is available on contribution under 80C. The interest earned during the tenure of the scheme is not taxable. Tax is levied only on contributions above Rs 2.5 lakh per annum. This means that the money you receive on maturity is tax-free.
Interest earned on Senior Citizens Savings Scheme and Bank Fixed Deposits is taxed as per your slab. PPF and Sukanya Samriddhi Yojana offer tax benefits like EPF, but the returns available in them are less.