Small saving schemes are government-administered savings products. These schemes are backed by the government which ensures the safety of the capital. The rates of the schemes are revised every quarter.
Small saving schemes have the following benefits:
- Fixed rates: Returns on the schemes are fixed and declared beforehand.
- Government Backing: Government-backed so the capital is perceived to be safe.
- Tax: certain schemes have tax benefits. Contributions to PPF, NSC, Sukanya Smriddhi, and SCSS are tax-deductible under 80C. Interest on PPF and Sukanya Samriddhi is tax free. Interest on NSC is tax-deductible under 80C.
While small savings schemes have a relevance for smaller investors, as an investor’s investment corpus grows the various restrictions (limitations on min and max amount, operational complexities, long lock-ins) make them not as suitable as other investment options.
Quick Comparison of Key Small Saving Schemes
| Saving Scheme | Interest Rate (Mar ’24) | Term | Tax Status | Details |
| PO Savings Account | 4% | NA | Taxable | – No Upper Limit |
| PO Time Deposit | 6.9% – 7.5% | 1 – 5 Years | Taxable | – Rs. 200 min with No Upper Limit – 1-5 year term |
| PO Monthly Income Scheme | 7.4% | 5 Years | Taxable | – Rs. 1500 min to Rs. 4.5 lakh max |
| National Savings Certificate | 7.7% | 5 Years | 80c Tax-Benefits (upto 1.5 lakhs****) | – Rs. 100 min with No Upper Limit |
| Public Provident Fund Scheme | 7.1% | 15 Years * | 80c Tax Benefits (upto 1.5 lakhs) Interest tax-free | – Rs. 500 min to Rs. 1.5 lakh max per annum |
| Kisan Vikas Patra | 7.5% | 2.5 Years | Taxable | – Rs. 1000 min with No Upper Limit |
| Sukanya Smriddhi Account | 8.2% | 21 Years ** | 80c Tax Benefits (upto 1.5 lakhs) Interest tax-free | – Rs. 1000 min and Rs. 1.5 lakh max per annum – Only for girl child’s aged 10 years or younger |
| Senior Citizen Savings Schemes | 8.2% | 5 Years *** | 80c Tax Benefits (upto 1.5 lakhs) Interest Taxable | – Rs. 1000 min and Rs. 15 lakh max – For senior citizens aged 60 or above |
The saving schemes can be categorized based on who it is targeted to – all Indian, girl child, and senior citizens.
Saving Schemes for all Indians
These schemes include those from the post offices such as savings account, monthly income, and recurring deposit as well as those available in banks such as Public Provident Fund (PPF), National Savings Certificate (NSC), and Kisan Vikas Patra.
POST OFFICE SAVINGS ACCOUNT
Post office savings account is similar to a savings account with a bank, except that this is held with a post office. While there are no restrictions on who can benefit from this scheme, the biggest drawback of the scheme is the lack of tax benefits. Interest earned in this scheme is fully taxable. However, INR 10,000 per annum deduction is available on total savings account interest.
POST OFFICE TIME DEPOSIT
The time deposit scheme is similar to a bank fixed deposit. The minimum investment required is INR 200 with no upper limit. Time deposits have various term periods such as 1, 2, 3, and 5 years. While the lower tenure schemes have no tax benefits, the 5-year time deposit scheme allows for a tax deduction on the amount contributed.
POST OFFICE RECURRING DEPOSIT ACCOUNT
The recurring deposit account allows any individual to deposit a fixed amount every month. The term period for the account is 5 years, which can be renewed and extended to 10 years. Similar to savings account, there are no tax benefits available and the interest is fully taxable.
POST OFFICE MONTHLY INCOME SCHEME
The monthly income scheme provides, as the name suggests, a monthly income to the individual against the deposit. The minimum amount required to deposit is INR 1500 with a maximum limit of INR 4.5 Lakh per individual (9 lakhs for a joint account). The term for the scheme is 5 years, any premature withdrawal between 1-3 years attracts a 2% penalty and any withdrawal between 3-4 years attracts a 1% penalty charge.
PUBLIC PROVIDENT FUND ACCOUNT
The PPF has a term of 15 years, which can be extended indefinitely in blocks of 5 years. The interest on PPF is tax-free and contributions to PPF are tax deductible up to INR 1.5 lakh per annum.
KISAN VIKAS PATRA
Kisan Vikas Patra needs a minimum investment of INR 1000 with no upper limit. Any premature withdrawal is allowed 2.5 years after the purchase. The scheme has no tax rebate on contributions or interest earned. An account can be opened on behalf of a minor under KVP.
NATIONAL SAVINGS CERTIFICATE
The minimum investment required for the NSC is INR 100 with no maximum limit. The term of the scheme is 5 years. The scheme offers tax benefit in the form of interest earned is deemed to be reinvested and eligible for tax deduction up to INR 1.5 lakh under 80C, the principal amount also counts towards the same tax deduction up to INR 1.5 lakh.
Saving Schemes for Girl Child
Launched in 2015, the scheme is aimed specifically at the girl child.
Sukanya Samriddhi YOJANA
The scheme is for a girl child who is 10 years of age or younger. The account can be opened by a parent or legal guardian for a girl child. The minimum annual investment required is INR 1000 with a maximum annual limit of INR 1.5 lakh. The scheme has a maturity of 21 years after opening or on the marriage of the girl child after she reaches the age of 18. Premature withdrawal of 50% of the balance is allowed after the girl crosses 18 years, even if she is not married. The scheme also has tax benefits, the interest is tax-free and the contribution is tax-deductable under Section 80C.
Saving Schemes for Senior Citizens
Caters to senior citizens, individuals aged 60 and above. Offers higher interest than prevailing FD rates. Tax deduction for annual contribution up to 1.5 lakh under 80C.
SENIOR CITIZEN SAVINGS SCHEME
The SCSS is for senior citizens above the age of 60. The minimum required investment is INR 1000 and the maximum investment is INR 15 lakhs. SCSS has a tenure of 5 years, which can be extended for another 3 years if requested within 1 year of the original maturity. The scheme offers tax benefits in the form of tax-deductible up to INR 1.5 lakh per annum under 80 C, however the interest in fully taxable. Premature closure of the account leads to a 1.5% penalty if the closure is requested 1-2 years from account opening and 1% if requested after 2 years.