Small-saving instruments such as post-office fixed deposits (FDs), National Savings Certificates (NSCs), the Public Provident Fund (PPF) and the Senior Citizens’ Saving Scheme (SCSS) are popular among investors not only for the secure returns they offer but also the tax benefits they come with.
These schemes can fetch tax deductions of up to Rs 1.5 lakh under Section 80C of the income-tax act, provided you choose the old, with-exemptions tax regime. These benefits are not available under the new, simplified tax regime.
While interest rates for bank FDs are falling after Reserve Bank of India’s (RBI) back-to-back repo rate cuts, the government has left small-saving rates unchanged for the July-September quarter.
Small savers, particularly senior citizens who tend to be risk-averse, can make use of this window to rethink their allocation to various instruments in their debt portfolio.
“Small-saving schemes’ returns are now much higher than bank FD rates. These are popular instruments where the government fixes the rates and they don’t come down in a hurry. Those looking to invest consider not only returns, which are assured, but also liquidity and tax implications,” said Viral Bhatt, founder, Money Mantra, a financial advisory firm.
You can invest in small-saving schemes through post offices, including India Post’s online platform, besides banks such as State Bank of India and ICICI Bank.
“It absolutely makes sense to look at these schemes due to the stability of the investment and regular income mode that some offer but the only drawback is the lock-in period, which in many cases can be longer and rigid,” said Kalpesh Ashar, founder, Full Circle Financial Planners and Advisors.
Ashar suggested that senior citizens diversify across instruments — debt funds, fixed deposits and government bonds — within the fixed income space. “They can choose instruments that offer liquidity, stability and regular income, as per their requirements,” he said.
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Five-year National Savings Time Deposits
- Current rate of interest: 7.5 percent per annum
- 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 not permitted
- If closed after a year, interest rate applicable will be 2 percentage point lower than the original interest rate offered for the completed years.
Senior Citizens Savings Scheme (SCSS)
- 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.
- Open to individuals over the age of 60 (55 years in the case of retired civilian employees and 50 years for defence employees)
- No interest will be paid if account is closed within a 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 is deducted from the principal amount.
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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 a financial year, the account is 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.
- It comes with a maturity tenure of 15 years, though loan facilities and partial withdrawals are allowed.
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 enrol
- 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.
- Account matures 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 permitted after the girl turns 18 or passes Class 10.
- Premature closure allowed after five years in the case of the accountholder’s death or on account reasons such as life-threatening illnesses contracted by the accountholder, death of the parent or guardian who operates the account.
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.
- Deposit will mature after five years, no premature closure permitted.
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