In line with the decision to lower the small savings rate, the Finance Ministry has moved to a quarterly reset of the interest rate on General Provident Fund (GPF) and cut it to 8.1 per cent for the quarter ending June 30.

The interest on contributions to the GPF was 8.7 per cent in 2015-16 and the revised return is the same as that offered by the Public Provident Fund.

“Accumulations at the credit of subscribers to the GPF and other similar funds shall carry interest at the rate of 8.1 per cent from April 1, 2016 to June 30, 2016,” said a resolution by the Finance Ministry.

Apart from the GPF, the same interest rate will also be provided to subscribers of the Contributory Provident Fund, the All India Services Provident Fund and the State Railway Provident Fund.

It will also be applicable to all provident funds of the defence services and armed forces, naval dockyard workers and ordinances workers.

The move will impact over 32 lakh Central government employees, apart from lakhs of defence personnel and eventually state government workers, whose provident fund returns are usually in line with that of the GPF.

“GPF and PPF rates have traditionally been aligned with each other. With the revision in the small savings rates, it was natural that the rates of the GPF too would be reviewed,” said a senior government official familiar with the development.

With the aim to improve the monetary transmission of interest rates by banks, the Finance Ministry had, in March this year, announced that returns on small saving instruments would be aligned with the market rates of the relevant Government securities.

The next reset of interest rates on small savings is expected on June 15 for the July to September quarter.  

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