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Tax Saving Schemes At A Glance

Post Office Tax Saving Schemes ROI Tenure Investment Range Tax Benefit
Principal Interest Maturity
15 Year Public Provident Fund (PPF) 7.9% 15 years 200 – No Limit
Yes Yes Yes
National Savings Certificate (NSC)
7.9% 5 years 100 – No Limit
Yes Yes No
Sukanya Samriddhi (SSY)
8.4% 21 years 250 – 150,000
Yes Yes Yes
Senior Citizen Savings Scheme (SCSS) 8.6% 5 years 1,000 – 15,00,000
Yes No No
5-Year Post Office Time Deposit
7.7% 5 years 200 – No Limit
Yes No No
Post Office Savings Account
4.0% NA 20 – No limit Yes Yes, subject to maximum ceiling of 10000 INR p.a. + 3,500 u/s 10(15)(i) Yes
Kisan vikas patra 7.6% 113 Months 1000 - No Limit No No No
PostOffice Monthly Investment Scheme 7.6% 5 years 1500- 4.5 Lakhs No No No

15 Year Public Provident Fund (PPF)

An investor can open a PPF account either with selected private sector banks or designated branches of nationalised banks and post offices. The major attributes which have transformed PPF into a lucrative go-to investment module of Indian taxpayers are:

  • Deduction under section 80C on the amount deposited in PPF,
  • Interest earned on such account and,
  • Amount received on PPF maturity.

This safe vehicle can lead to wealth creation in the long run while safeguarding you from the wrath of taxation.

Let’s now take a look at some of its unique features of PPF:

  • It takes INR 100 to open a new PPF account.
  • The minimum amount that can be deposited is INR 500 to a maximum of upto INR 150000.
  • The current interest rate effective from 1st October 2019 is 7.9% per annum.
  • Only single individual account can be opened and no joint account facility is provided.
  • Maturity period of PPF is 15 years beyond which it can either be withdrawn or extended for another 5 years.
  • Facility of premature withdrawal is not allowed.
  • Withdrawal is permissible after the completion of 7 years from the date of account opening.
  • The investor can enjoy tax free interest on PPF.
  • Investor can also avail loan benefits by opening a PPF account.
  • PPF account can be opened either by cash or cheque.
  • Facility to assign a nominee is available at the time of account opening.

Common FAQs:


Q- Is it possible to open a PPF account online?

To make it more convenient for the investors the facility of online opening of PPF account is provided, for which the investor has to fulfill certain conditions put forth by banks:

  • The individual should have a savings bank account with the bank.
  • The individual should have access to netbanking.
  • The individual’s account should be linked with his Aadhaar.

Q- Which banks are the safest to open a PPF account?

Currently, some of the best options for PPF account are State Bank of India, Punjab National Bank, Bank of Baroda, and ICICI Bank. These banks extend several benefits like easy account opening, loan facility based on the PPF account, an online facility for transfers and to check account balances.


Q- How are PPF interest rates determined?

PPF interest rates are determined by the Ministry of Finance, Government of India. All banks offer the same interest rate determined by the Government.


Q- Is there any age limit for opening a PPF account?

There is no prescribed age limit for opening a PPF account. Any Indian above the age of 18 can open his own PPF account. Minors can also open a PPF account by appointing Guardians and can take control of their account upon reaching the required age.


National Savings Certificate

The National Savings Certificate has become a popular tax saving module for the Indian investors. There are three different modes of holding NSC certificate which are as follows:

  1. Single Holder Type: It can be purchased by the individual for himself or on behalf of a minor.
  2. Joint A type: It is a case wherein there are two investors who will enjoy equal share of maturity benefits.
  3. Joint B type: It is similar to that of Joint A type but in this case only one investor will be paid the maturity proceeds.

Mentioned below are some of its salient features of National Savings Certificate:

  • Interest rate from 1st October 2019 has been set at 7.9% which is compounded annually for being paid at maturity.
  • Investors can deposit a minimum of 100 INR in NSC. Further deposits can be made in multiples of 100 with no upper ceiling on the maximum deposit amount.
  • An adult can purchase a single holder type certificate either for himself or for a minor.
  • All the deposits made to NSC qualify for tax rebate u/s 80C of the Income Tax Act 1961.
  • Interest accruing annually is treated as ‘deemed to be reinvested’ as per Section 80C of the Income Tax Act subject to the total limit of 150000 INR. However, since the final or fifth year’s interest does not get reinvested, it is added back to the certificate holder's income for being taxed accordingly.
  • For the 5 years NSC VIII, certificates can be transferred to other holders only once between the date of issue and maturity. Old certificates shall not be discharged during this transfer. Old holder's name will be replaced by a new holder on the old certificate as well as the purchase application. This will appear below the dated signatures of authorized Postmaster along with the date stamp of Post office and his designation stamp.

Common FAQs:


Q- What is the lock-in period for NSC?

Initially, NSC was issued for two maturity periods: 5 years and 10 years. But recently, NSC for 10 years was discontinued and thus is issued only for 5 years.


Q- Can NSC be encashed before the maturity period?

Generally, the encashment of NSC before the maturity period is not possible. However, it can be encashed before the maturity period under special circumstances and those are:

  • Can be encashed upon the death of the NSC holder
  • Can be encashed when ordered by the court

Q- What steps can be undertaken if the NSC certificate is lost?

If the NSC certificate is lost, stolen or damaged, then you can apply for a duplicate NSC certificate. All you need to do is fill ‘Form NC29’ and submit it either to the post office where the certificate is registered or to any other post office.



Sukanya Samriddhi Yojana

This small savings scheme was initiated especially for the betterment of girl child. This latest entrant to the EEE category can be opened in post offices as well as some designated banks. Let’s now discuss some of its features:

  1. Interest rate has been set at 8.4% per annum from 1st October 2019 for being compounded yearly.
  2. Investors can deposit a minimum of Rs. 250 and maximum of Rs. 1,50,000 INR in a particular financial year. Subsequent deposits can be made in multiples of 100 INR. There is no upper limit on the number of deposits in a month or fiscal year.
  3. The natural or legal guardian can open a Sukanya Samriddhi account in the name of the girl child. The guardian can open a maximum of two accounts in the name of two girl children.
  4. Guardians can open this account within 10 years of childbirth. One year grace period is given in case of initial scheme operations.
  5. The account will get discontinued if minimum of Rs.1000 is not deposited in a particular financial year. This can, however, be revived by paying a penalty of 50 INR every year along with the minimum deposit amount.
  6. Guardians can close the account after completion of 21 years.
  7. Once the account holder attains adulthood, partial withdrawal can be carried out subject to the maximum ceiling of 50% account balance remaining at the end of the previous financial year.
  8. Premature closure is allowed after the girl attains 18 years of age and gets married.
  9. Investment, returns and withdrawals are all tax-free under section 80C of the Income Tax Act in Sukanya Samriddhi Yojna.

Common FAQs:


Q- Where can I open my ‘Sukanya Samriddhi’ account?

28 banks have been authorised by the Reserve Bank of India to facilitate the opening of the account. Some of the most popular banks are Axis bank, Allahabad bank, State Bank of India, Bank of Maharashtra, Bank of Baroda, Vijaya Bank, ICICI bank, Union Bank of India, Punjab National Bank, Corporation Bank, and many more.


Q- What is the prescribed age for opening a ‘Sukanya Samriddhi’ account?

The account can be opened from the birth of the girl child till she turns 10 years old. It is important to note that the child should not be more than 10 years old while opening the account.


Senior Citizen Savings Scheme (SCSS)

This Post Office tax saving scheme as the name suggests is implemented for senior citizens. Individuals who have retired under VRS (Voluntary Retirement Scheme) or on superannuation and belonging to the age group of 55-60 can also invest in this scheme. It is imperative that the account is opened within a month of receiving retirement benefits and the amount does not exceed the total quantum of retirement benefits. The following are its key aspects:

  • Rate of interest has been fixed at 8.6% p.a. from 1st October 2019. Quarterly interest standing at a particular post office can be credited to the savings account held in other post offices.Interest is calculated and paid at different dates spread across four quarters. The last day of every quarter is when the interest is calculated and is paid on the next day. Refer to the table mentioned below to check the dates:
    Interest Calculated Interest Paid
    31st March 1st April
    30th June 1st July
    30th September 1st October
    31st December 1st January
  • Only one-time deposit in the SCSS in allowed in multiples of 1000 and subject to the maximum ceiling of 15 lakh INR.
  • The amount deposited comes with a maturity period of 5 years.
  • The account can be opened by paying cash for amount below 1 lakh INR and by cheque for amount either equal to or exceeding 1 lakh INR.
  • More than one account can be operated by a depositor either in individual capacity or with his or her partner.
  • Nomination facility can be availed either during or after opening the account.
  • For cheque payment, the date when the same gets deposited with the government’s exchequer is considered as the date of account opening.
  • A policy holder can open ‘n’ number of accounts in a post office under the maximum ceiling of 150000 INR by adding all his account balances.
  • The SCSS account can be transferred from one post office to another.
  • In the case of joint account, the first depositor is regarded as the main investor.
  • Investors can opt for Money Order or PDCs to draw in interest automatically to their savings account especially while holding the account at the same post office.
  • The account can be closed prematurely after one year of opening the same. However, in such a case, account holders shall be penalised with an amount equivalent to 1.5% of the deposit. The penalty amount diminishes to 1% on closure of the account within two years since its opening.
  • Senior citizens can extend the tenure of the account by three more years starting from the first-year post maturity. For this they will have to submit an application by following a prescribed format. This particular scheme can be foreclosed on the passage of one year from its extension and that too without the levy of any penalty.
  • TDS gets deducted at source on the interest arising out of such investments provided the interest amount exceeds 10000 INR.
  • Investors can claim tax benefits u/s 80C of IT Act starting with investments made from 1/4/2007 onwards.

Common FAQs:


Q- Are senior citizens entitled to any tax benefit under this scheme?

Yes, senior citizens are entitled to a tax rebate under section 80C of the Income Tax Act on the investments. The benefit can only be availed up to Rs. 1.5 lakhs in one financial year. However, if the money is withdrawn before maturity, you will no longer be entitled to a tax rebate in that financial year. You can also save up to Rs. 50,000 on the interest earned under this scheme under section 80TTB.


Q- What options are available to the senior citizens once the account reaches maturity?

Once the account reached maturity, you can either close the account or can extend for three more years post-maturity. For closing the account, you will have to submit the ‘closure form’ along with your passbook. And for extending the account, you will need to submit the ‘extension form’ before the maturity of the account.



5-Year Post Office Time Deposit

TThis lucrative tax saving investment is preferred by risk-averse investors because of its following features:

  • Interest is calculated quarterly and paid annually. Rate of interest has been fixed at 7.7% p.a. from 1st October 2019.
  • Does not have any maximum ceiling on investment amount.
  • Minimum amount to be invested is INR 200.
  • An individual can open ‘n’ number of accounts with a particular post office and transfer his holding from one post office to another.
  • Two adults can open a joint account. An adult can open an account in the name of a minor. A minor exceeding 10 years of age can both open as well as operate the account.
  • Once the fixed deposits reaches maturity, it automatically gets renewed if the money is not withdrawn or transferred.
  • Offers flexibility in converting a single account to a joint mode and vice versa.
  • A minor can convert the account in his name after attaining majority.
  • Investment made under the Time Deposit qualifies for a benefit under section 80C benefit of IT Act subject to the maximum ceiling of 1,50,000 INR. However, only the principal amount paid is eligible for tax deduction. Both the interest and maturity amount is taxed in accordance with the tax slab of an individual. But senior citizens can take the benefit of tax exemption on interest earned upto 50,000 INR u/s 80TTB of the income tax act.

Common FAQs:


Q- Is there any difference between post office term deposits and bank’s fixed deposits?

These terms differ in terms of interest rates, deposit amounts, account closure policies, and the risk factor.


Q- What is the minimum and maximum amount that can be deposited in a bank's FD?

The maximum amount that you can deposit in your FD is Rs. 1.5 lakhs in one financial year. However, the minimum amount varies from bank to bank and usually falls in the range of Rs. 100 to 1,000.


Q- What is the real rate of return and does FD’s offer that?

The real rate of return is the actual return paid on your investment after taking into account the current inflation rate. And, no, FD’s do not offer a positive real rate of return.


Q- For how many years can time deposits be issued?

Time/term/fixed deposits can be issued for 1, 2, 3 and 5 years and all of which have different interest rates.



Post Office Savings Account

This is similar in nature to the normal savings account held in a bank. Let’s now take a look at some of its unique attributes:

  • 4% interest per annum is allowed on both individual as well as joint accounts.
  • Account can be opened only through cash medium and with minimum investment of 20 INR.
  • A minimum balance of 50 INR has to be maintained at all times in a non-cheque facility.
  • Cheque facility can be availed on opening the account with 500 INR. A minimum balance of 500 INR also has to be maintained throughout the year in such a scenario.
  • An existing account holder can also use the cheque facility provided he maintains the minimum account balance of 500 INR.
  • Interest earned up to 10000 INR/ 50000 INR is kept exempt from the purview of taxation asper section 80TTA and 80TTB. Also, additional tax benefit of 3500 INR is available u/s 10(15)(i) of the income tax act.
  • Only one account can be opened with a post office.
  • Nomination can be done both during and after account opening.
  • Two or three adults can open a joint account together. They can also open an account in lieu of a minor who can operate the same after attaining 10 years of age.
  • The account shall remain active provided at least one transaction of withdrawal or deposit takes place in three consecutive financial years.
  • Offers flexibility of toggling between single and joint account. Even minors can convert the account in their name after attaining adulthood. Offers ATM facility.

Common FAQs:


Q- How can I open a post office savings account?

The process is very simple. You will need an account opening form which is easily available at the post office and the Indiapost website online. You need to submit this form along with your KYC documents at any post office. Complete the process by depositing the amount.


Q- Is post office savings account scheme beneficial?

It is a beneficial scheme for small investments as individuals earn a fixed interest on the investments. It is also easily transferable, easily accessible and can be withdrawn anytime.


Q- Are online facilities available for post office savings account?

Post offices that have been upgraded to ‘core banking solution’ have the online facility. If you have an account at any of these post offices, then you can access your account via online means and can also it for transferring money.


Q- How much money can be withdrawn from your post office savings account?

You need to maintain a minimum cash balance of Rs. 50 in a non-cheque account and Rs. 500 in a cheque account. You can withdraw all the money except the minimum amount which needs to maintained mandatorily.


Q- What happens if no transaction is recorded for a minimum of three years?

If no transaction is recorded, then the account will be tagged as a ‘silent account’. Although you can activate your account anytime by making a transaction but a penalty will be levied for all the inactive years.


Q- Are minors eligible to open a savings account at the post office?

Yes, minors above the age of 10 can open a savings account. They are eligible for a single type account provided they submit all the relevant documents in the post office. Minors below the age of 10 can also open the account by appointing a guardian who can open and operate the account on their behalf.



Kisan Vikas Patra (KVP)

It is a small saving scheme available at Indian post offices in the form of certificates.Its risk free nature is what; which has attained the scheme it’s current popularity among masses.

Types of Kisan Vikas Patra (KVP):

  1. Single Holder type: This type of certificate is issued individually for a person or to an individual on behalf of a minor.
  2. Joint A type certificate: This type of certificate is issued to two adults jointly and is payable to both at the time of maturity.
  3. Joint B type certificate: This type of certificate is issued to two adults jointly however only one individual would be payable at the time of maturity.

Some salient features associated with KVP are:

  • The current KVP interest rate is 7.6% which is subjected to change periodically.
  • No upper limit has been set for KVP.
  • The minimum investment should be of at least Rs. 1,000.
  • The funds invested in KVP with effect from 1st July 2019 will be doubled in 113 months i.e. 9 year and 4 months.
  • The KVP certifications are available in the form of following denominations:
    Rs. 1,000,
    Rs. 5,000,
    Rs. 10,000 and
    Rs. 50,000.
  • KVP application forms are available online as well as in all post offices nation-wide and in certain selected banks.
  • Encashment before the maturity period is possible only after 2.5 yrs on the grounds of certain terms and conditions.
  • KVP can be transferred from one post office to another easily.
  • Premature withdrawals before one year will not get any interest. Withdrawals between 1 yr to 2.5 yrs will be given interest but at a reduced rate.

Common FAQs:


Q- Who can apply for a KVP certificate?

The following people can apply for a KVP certificate:

  • A resident of India.
  • A guardian can invest on the minor’s behalf.
  • HUF( Hindu Undivided Family) cannot invest in KVP.


Post Office Monthly Income Scheme

It is a small savings scheme backed up by the government of India. This scheme offers a fixed monthly guaranteed income which makes it a suitable scheme for retired people as well as people looking for an alternative source of income.

Below are some of the key features of the scheme:

  • The current rate of interest offered under this scheme is 7.6 per annum, which is payable on a monthly basis.
  • The POMIS account can be opened single or joint handedly.
  • A minor above the age of 10 is also eligible to open a POMIS account.
  • The minimum investment amount is Rs. 1500 and the upper cap is 4.5 Lakh in single holding whereas 9 Lakh in case of joint account.
  • Investor is allowed to hold multiple accounts with a combined total investment of 4.5 Lakhs.
  • The deposited amount can be withdrawn after 1 year by paying certain percentage of penalty.
  • Transfer of account is possible from one account to another.
  • It is possible to open POMIS account either by cheque or cash.
  • The money invested is quite safe i.e. the scheme is free of any kind of market risk.
  • There is no TDS deduction on POMIS.

Common FAQs:


Q- Is it possible for an NRI to open a POMIS account?

It is not possible for a Non Resident Indian to avail the POMIS benefits.


Q- Is the POMIS upper cap different for a major and minor individual?

Yes, the POMIS upper cap of a major is different from that of a minor as the maximum amount that can be invested in by a minor is only 3Lakh whereas in case of a major it is 4.5 Lakh.


Q- Is it possible to reinvest the amount after maturity?

It is possible to reinvest in the same scheme for another 5 yrs to get double benefits.



Conclusion

Tax benefits are offered by these post office savings schemes for luring in more investors. This surely serves as an attractive yet safe mode for small investors to park their excess corpus.

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CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.