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Small Saving Schemes: Everything to Know about (PPF, NSC, Sukanya, others) including Tax Treatment


Government has issued the Order on 29th December, announcing the rate of interest for various small saving schemed for the forthcoming quarter (January to March-2024).


In the Order, Rate of interest has been kept same for all saving schemes except 3 Time Deposits for which interest rates have been increased from 7% p.a. to 7.1% and Sukanya Samriddhi Account Scheme for which rates has been increased from 8% to 8.2%.


In this article, we will discuss details about each saving scheme including their Tax Treatment.


Details of Current Rate of Interest of Each Scheme

Instrument

Rate of Interest from 01.01.2024 to 31.03.2024

Rate of Interest from 01.10.2023 to 31.12.2023

Senior Citizen Savings Scheme

8.2

8.2

National Savings Certificate

​7.7

​7.7

Public Provident Fund Scheme

7.1

7.1

Kisan Vikas Patra

7.5 (will mature in 115 months)

7.5 (will mature in 115 months)

Sukanya Samriddhi Account

Scheme

8.2%

8.0

Mahila Samman Savings Scheme

7.5%

7.5%

DETAILS OF EACH SCHEME INCLUDING THEIR TAX TREATMENT 



1. Public Provident Fund (PPF): For Every Individual

Scheme Features

  • Current Interest Rate is 7.1% (Compounded Annually).

  • Account can be opened by Individuals with Public Sector Banks, Private Sector Banks or Post Office (Duly authorized by Ministry of Finance).

  • Only one account can be operated by an individual. Though additional accounts can be opened in the name of minor son/daughter.

  • Joint-Accounts are not permissible

  • Maximum amount of investment is Rs.1,50,000 in a Financial Year (in maximum 12 tranches). This is inclusive of of the deposits made in his own account and in the account opened on behalf of the minor.

  • Minimum amount of investment is Rs.500.

  • Interest is paid annually in the account. (Calculation is done on monthly basis; taking each month’s lowest balance between 5th & last day of that month).

  • If in any financial year, minimum deposit of Rs.500/- is not made, the said PPF account shall become discontinued. Discontinued account can be revived by the depositor before maturity of the account by deposit minimum subscription (i.e. Rs. 500) + Rs. 50 as default fee for each defaulted year.

  • Premature Closure: In 2016, Government allowed premature closure after completion of five financial years for specified reasons like medical, higher education etc. At the time of premature closure 1% interest shall be deducted from the date of account opening/date of extension as the case may be.

Partial withdrawal- One withdrawal per Financial Year is allowed starting from 7th Financial Year. (like account opened in 2020-21, withdrawal can be done from year 2026-27). Amount of withdrawal can be taken up to 50% of balance at the credit at the end of 4th preceding year or at the end of preceding year, whichever is lower. (i.e. withdrawal can be taken in 2023-24, up to 50% of balance as on 31.03.2021 or 31.03.2023 whichever is lower).


Loan Facility: is allowed from 3rd Year (like Account opened in 2020-21, Loan can be taken from 2022-23). Loan can be taken up to 6th Year (like Account opened in 2020-21, Loan can be taken up to 2025-26).

Loan amount can be 25% of the balance to his credit at the end of the second year immediately preceding the year in which loan is applied. (i.e. if loan taken during 2023-24, 25% of balance as at 31.03.2022).

Maturity: Account will be matured after 15 F.Y. years excluding FY of account opening. On maturity depositor has the following options:-

(a) Can take maturity payment by submitting account closure form.

(b) Can retain maturity value in his/her account further without deposit, the PPF interest rate will be applicable and payment can be taken any time or can take 1 withdrawal in each FY.

(c) Can extend his/her account for further block of 5 years and so on (within one years of maturity) by submitting prescribed extension form.

In extended account with deposits, 1 withdrawal can be taken in each FY subject to maximum limit 60% of balance credit at the time of maturity in the block of 5 years.


Death of account holder: In case of death of account holder, the account shall be closed and nominee or legal heir(s) shall not be allowed to continue deposits in the account.

At the time of closure due to death PPF, rate of interest shall be paid till the end of the preceding month in which account is closed.


Tax Treatment:

  1. Interest income is exempt from Taxation u/s 10(11) of Income Tax Act.

  2. Investment amount can be claimed under section 80(C).


2. Sukanaya Samriddhi Scheme (If you have Girl Child Go for it instead of PPF)

Scheme Features

  1. In 2014 Government started this scheme with the objective of achieving Girls Welfare and their Financial Protection.

  2. Current Interest Rate is 8%. (Compounded Annually)

  3. Account can be opened by Individuals with Authorized Public Sector Banks, Private Sector Banks or Post Office.

  4. Natural/Legal guardian can open the account. Account will be operated by the guardian till the girl child attains the age of majority (i.e. 18 years).

  5. For up to two girl children till she attains age of 10. For three girls is also allowed in case of twins happened at the time of second child.

  6. Maximum amount of investment is Rs.1,50,000 in a Financial Year (no limit on number of tranches). Minimum amount of investment is Rs.250.

  7. Amount of deposit can be up to completion of maximum 15 years.

  8. Maturity of Account: 21 years or marriage of girl child after attaining age of 18 years.

  9. Partial Withdrawal: 50% after attaining 18 years of age or passing of 10th standard by daughter for Higher Education or marriage purpose.

  10. Premature Closure: Allowed in the event of death of the account holder (unfortunate Girl Child) or in cases of extreme compassionate grounds such as medical support in life threatening diseases to be authorized by an order by the Central Government.

Tax Treatment:

  1. Interest income is exempt from Taxation u/s 10(11A) of Income Tax Act.

  2. Investment amount can be claimed under section 80(C)


3. Five Year Senior Citizen Saving Scheme (SCSS)

Scheme Features

  1. Objective is to provide assured income to our respected senior citizens.

  2. Current Rate of interest is 8.2%. (Interest is paid quarterly i.e. 30 June, 30 September, 31st December, 31st March).

  3. Account can be opened by with Authorized Public Sector Banks, Private Sector Banks or Post Office.

  4. One who has attained age of 60 years or more,

  5. 55 years or more (in case of retired civilian employee like in case of VRS), 50 years or more (in case of defense personnel). Here condition is account should be opened with in one year of receipt of retirement benefits.

  6. Account can be opened as individual capacity or jointly with spouse only. The whole amount of deposit in a joint account shall be attributable to the first account holder only.

  7. There will be only one deposit at the time of opening of account, Maximum amount of investment is Rs.30,00,000/-(Rs. 15 lakhs).

  8. Tenure is 5 years, extendable for another 3 years. Extended account shall earn interest at the rate applicable on the date of maturity.

  9. Premature closure is allowed anytime subject to following conditions:

(i) If account closed before 1 year, no interest will be payable and if any interest paid in

account shall be recovered from principle.

(ii) If account closed after 1 year but before 2 year from the date of opening, an amount equal to 1.5 % will be deducted from principal amount.

(iii) If account closed after 2 year but before 5 year from the date of opening, an amount equal to 1 % will be deducted from principal amount.

(iv) Extended account can be closed after the expiry of one year from the date of

extension of the account without any deduction.


Tax Treatment:

  1. Investment amount can be claimed under section 80(C).

  2. Interest income is taxable, although Budget, 2018 has made interest income exempt up to Rs.50,000/- (Section 80TTB)

4. National Saving Certificates

Scheme Features

  1. Any individual above 10 years of age can open account. For minor, guardian can open the account.

  2. 5 years NSCs are issued by Post Office.

  3. Current Rate of Interest is 7.7%.

  4. Minimum investment is Rs.100/-, maximum no limit. Further, any number of accounts/certificates can be purchased.

  5. NSCs can be pledged also like security to the RBI/Scheduled Bank/Co-operative Society/Co-operative Bank, Corporation (public/private)/Govt. Company/Local Authority,Housing finance company.

  6. Interest accrues annually, re-invested in certificates.

  7. Maturity is at 5 years, but can be transferred to other individual.

  8. NSC may not be prematurely closed before 5 years except the following conditions

(i) On the death of a single account, or any or all the account holders in a joint account

(ii) On forfeiture by a pledgee being a Gazetted officer.

(iii) On order by court.


Tax Treatment:

  1. Investment is eligible for deduction under 80C.

  2. Interest is taxable, although interest reinvested in NSC is eligible for 80C.

5. Mahila Samman Savings Scheme


Scheme Features

  1. Can be opened with Post-Office or Banks (Govt. & Private both duly authorised by MoF).

  2. Account can be opened by a woman and by guardian on behalf of minor girl.

  3. Rate of interest is 7.5% (compounded quarterly).

  4. Can be opened till 31st March, 2025.

  5. Can open more than one account (after time gap of three months) but maximum limit of deposit per Account Holder is Rs. 2 Lakhs P.A.

  6. 40% withdrawal of eligible balance can be taken after one year from the date of account opening.

  7. Maturity is Two Years from date of opening of account.

Pre-mature closure

(i) On the death of the account holder

(ii) On extreme compassionate ground (i) Life threatening decease of account holder (ii) death of the guardian on production of relevant documents.

In case of Premature closure on above two grounds, Scheme interest @ 7.5% will be paid on principal amount.

(iii) After six months of account opening without mentioning any reason.

In case of Premature closure of the Scheme after six months without any reasons, interest less by 2 per cent will be paid e.g. 5.5% will be paid on principal amount.


Tax Treatment

  1. 80C is not allowed against investment in Mahila Samman Saving Scheme.

  2. Interest is taxable.

6. Kisan Vikas Patra


Scheme Features

  1. Can be opened with Post-Office only.

  2. 7.5 % compounded annually (Amount Invested doubles in 115 months (9 years & 7 months). Further, there is no limit on number of accounts/certificates.

  3. Amount invested is Minimum of Rs. 1000/- and in multiples of Rs. 100/- No Maximum Limit.

  4. Any individual of the age 10 years or above. (For minors by Guardian) can open the account.

  5. The deposit shall mature on the maturity period like it is now 115 months.

  6. KVPs can be pledged with specified authorities.

Premature closure

KVP may be prematurely closed any time before maturity subject to the following conditions

(i) On the death of a single account, or any or all the account holders in a joint account

(ii) On forfeiture by a pledgee being a Gazette officer.

(iii) When order by court.

(iv) After 2 years and 6 months from the date of deposit.


Tax Treatment

  1. 80C is not allowed against investment in Kisan Vikas Patra.

  2. Interest is taxable.

7. PM CARES for Children Scheme, 2021


1. Date of event :- between the period 11.03.2020 to 31.12.2021 (extended till 28.02.2022 by MWCD) during which the children who had not attained the age of eighteen years, lost both parents or last surviving parent or both adopted parents or sole legal guardian to COVID-19 pandemic.


2. Joint Account Holder means concerned District Magistrate, who shall act as the guardian for the purpose of operation of the account under the scheme.


3. Scheme guidelines :- issued by the Ministry of Women and Child Development on PM CARES for Children Scheme, 2021.


4. Opening of Account :- Account will be opened in the name of a beneficiary with concerned District Magistrate as joint account holder for an eligible beneficiary who has not attained the age of 18 years on the date of event.


Provided that a single account may be opened for a beneficiary who has turned 18 years or more on the date of opening of the account.


5. Deposit :- The upfront lump-sum contribution shall be made in the account. For the purposes of computation of lump-sum contribution from PM CARES Fund, age of eligible beneficiary shall be the number of completed years on the upcoming date of birth on the date of opening of account.


6. On attaining age of 18 years of beneficiary the said upfront lump-sum will become ₹ 10 lakh and the account converted in a single account of the beneficiary.


7. The beneficiary will earn interest applicable to Monthly Income Account Scheme on ₹ 10 lakh and beneficiary would get monthly stipend in her/his savings account till she/he attains 23 years of age.


8. The beneficiary would receive a sum of ₹ 10 lakh on attaining 23 years of age.



HAPPY SAVING !!!

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Disclaimer: This is not an investment advice but only for informational/academic purpose.



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