Small-saving instruments – sold by India Post as well as banks – offer a host of tax breaks, besides guaranteed returns, which is their chief draw.
Lower minimum investment requirements and ease of access also constitute the key reasons why they remain the instruments of choice for many retail investors. You can also invest in these schemes online through India Post's Internet banking facility as also through your bank, provided it facilitates the service.
Here are the popular small saving instruments that also provide tax breaks under section 80C, which is available under the old, with-exemptions tax regime.
Also read: Moneycontrol's income tax calculator
1. Five-year National Savings Time Deposits
- Current rate of interest: 7.5 percent per annum
- Eligible for tax deduction of up to Rs 1.5 lakh under section 80C
- Interest earned will be taxable.
- Minimum investment needed is Rs 1,000 and in multiples of Rs 100
- No maximum limit.
- Premature closure within six months will not be allowed.
- If closed after one year, interest rate applicable will be 2 percentage point lower than the original interest rate offered for the completed years; for the balance period, post office savings interest rates prevalent then will apply.
2. Senior citizens savings scheme (SCSS)
- Current rate of interest: 8.2 percent per annum, payable every quarter
- Interest is taxable if total interest in all SCSS accounts exceeds Rs 50,000 in a financial year.
- Account can be opened individually or jointly with spouse.
- Open to individuals over the of 60 years (55 years in the case of retired civilian employees and 50 years in the case of defence employees)
- Investments will qualify for tax deductions of up to Rs 1.5 lakh under Section 80C.
- Minimum deposit of Rs 1,000 and subsequently, in multiples of Rs 1,000.
- Maximum limit Rs 30 lakh.
- No interest will be paid if account is closed within one year.
- If account is closed between one and two years, principal amount will be reduced by 1.5 percent.
- If the account is closed between two and five years, 1 percent will be deducted from the principal amount.
Also read: Small saving schemes: Helping investors of all hues realise their life goals
3. Public provident fund
- Current rate of interest: 7.1 percent per annum
- Interest earned on PPF is tax-free
- Minimum investment amount is Rs 500 in a financial year, while the maximum is Rs 1.5 lakh.
- If the minimum contribution is not made in any financial year, the account will be discontinued.
- It can be revived before maturity once the accountholder deposits the minimum investment amount for the year along with penal charges of Rs 50 for each year of default.
- Contribution qualifies for deduction under Section 80C.
- It comes with a maturity tenure of 15 years, though loan facilities and partial withdrawals are allowed.
4. Sukanya Samriddhi Account (SSA)
- Current rate of interest: 8.2 percent per annum
- Only parents or guardians of girls up to the age of 10 years can enroll
- Interest earned on SSA is tax-free.
- Minimum investment amount is Rs 250, while the upper limit is Rs 1.5 lakh in a financial year.
- Contributions entitled to deduction under Section 80C up to the overall limit of Rs 1.5 lakh.
- Account will mature after 21 years from the date of opening or at the time of the girl’s marriage once she turns 18, though no closure will be permitted one month prior to, or three months after, the date of marriage.
- Premature withdrawals will be permitted after the girl turns 18 or passes the 10th grade.
- Premature closure will be allowed after five years in the case of the accountholder’s death or on account of specific reasons such as life-threatening illnesses contracted by the accountholder, death of the parent or guardian who operates the account.
5. Five-year National Savings Certificates (NSC)
- Current rate of interest: 7.7 percent compounded annually, payable at maturity
- Interest earned is taxable.
- Minimum deposit of Rs 1,000 and in multiples of Rs 100 subsequently.
- No maximum limit.
- Investment eligible for deduction under section 80C up to the overall limit of Rs 1.5 lakh.
- Deposit will mature after five years, no premature closure permitted.
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