Before investing in any retirement plan, it is always advisable that you take a look at the schemes which are offered by the Government. In recent times, interest rates were reduced to 8.55% by the Employees Provident Fund Organization or EPFO from the previous threshold of 8.65% for 2017-18. This decision had to be implemented since the organization would have to maintain the rates, particularly when it had already sold off a chunk of its investments in ETFs (exchange traded funds) which were worth around Rs. 2, 886 crore.
EPFO is now targeting the addition of 3 crore more subscribers. It has already invested approximately 15% of its income in ETFs which are worth up to Rs. 44, 000 crore. This decision could impact a whopping 6 crore people who are subscribers and there will be a surplus kitty of Rs. 586 crore for the EPFO in comparison to Rs. 695 crore in the last financial year. The EPFO is one of the most preferred retirement schemes since the interest and amount earned at the time of maturity are not subject to taxation. This helps in building a retirement corpus through contributions on a monthly basis from employers and employees alike.
The UAN (Universal Account Number) mechanism has ensured better accessibility to EPF accounts. Contributions to these accounts come with tax deductions under Section 80C. A maximum of Rs. 1, 50, 000 can be claimed as per this section. The minimum contribution cap is now 12% of Rs. 15, 000 or Rs. 1, 800. This means that the employer also has to pay the same amount.
The National Savings Certificate is another good investment channel. These certificates can be obtained from your nearest post office branch. There is no upper limit for buying these certificates although you can get tax deductions under Section 80C to the tune of Rs. 1, 50, 000. There is no TDS on the payouts from National Savings Certificates. This scheme comes with 5 years as a maturity period and interest rates are usually 7.6%. The interest varies on the basis of the kind of certificate that you are buying. However, calculations are done on the annual/yearly basis. The interest is tax free but the interest earned in the last year of maturity is taxable.
There were previously NSC VIII Issue and NSC IX Issue certificates. However, the latter has been phased out back in 2015. As a result, the NSC VII Issue can be subscribed to.