PPF investment ceiling up to 1 lakh, will earn more interest from Dec 1

The government today decided to increase the interest on Public Provident Fund (PPF) deposits to 8.6 per cent from 8 per cent, and raise the annual investment ceiling to Rs 1 lakh from Rs 70,000. The new rates will be effective December 1.

The move is well timed, given that most people start their tax-planning for the year in the last quarter of the financial year.

Rationalising the entire set of small savings schemes, the government also proposed to introduce a new National Savings Certificate (NSC) instrument with a 10-year maturity that would fetch an interest of 8.7 per cent. The post-tax yield on the new 10-year NSC would be 12.42 per cent in the highest tax bracket of 30 per cent.

The government has, however, done away with the Kisan Vikas Patra.

Small saving schemes attract tax benefits. With RBI deregulating interest rates on savings bank deposits, restructuring of the savings schemes was on the cards.

For the current year, the government has budgeted for receipts of Rs 6,900 crore through PPF. In the first six months of the current fiscal, the actual revenue mobilised through PPF, however, stood at Rs 1,324.32 crore, less than a fifth of the target.

The finance ministry has also reduced the maturity period for Monthly Income Scheme (MIS) and National Savings Certificate (NSC) from 6 years to 5. The rate of interest paid under Post Office Savings Account is up from 3.5 per cent to 4.

The government has aligned the rate of interest on small savings schemes with government securities of similar maturity, with a spread of 25 basis points except in certain conditions.

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