Post Office Schemes: PPF, NSC, SSY, SCSS and 5-year time deposit – Taxation, latest interest rates

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A look at five small savings post office schemes that helps reduce tax liability by investing a maximum of Rs 1.5 lakh per financial year in them.

For availing tax benefit on deposits made in post office small savings schemes, there are quite a few options. While there is no tax benefit under section 80C for investing in KVP, MIS and time deposit below 5 years, the tax exemption on post office schemes may be availed in case of PPF, NSC, SSY, SCSS and 5-year time deposit. But, these are all long-term schemes and hence investments should be lined with your long-term goals.

The good part is that all of them are government-backed investments wherein the principal invested and the interest earned are guaranteed by the government. The interest rates of the post office small savings investments are set by the government at the start of every quarter of the financial year. In some of them such as NSC and 5-year time deposit, the rate of interest will remain the same for the investor till maturity. For others, it will depend on the rate of interest as set by the government after every three months.



Here, we look at those 5 small savings post office schemes that help reduce tax liability by investing a maximum of Rs 1.5 lakh per financial year in them.

Public Provident Fund Account (PPF )
PPF is an investment with a 15-year tenure. The deposits qualify for tax benefit and even the interest earned is tax-free. The annual compounding helps to amass tax-free wealth over the long term with the highest safety. The minimum investment each year is Rs 500 and maximum of Rs 1.5 lakh ( self plus minor account) in each financial year is allowed. Currently, the interest rate is 7.1 per cent per annum, compounded annually and paid on maturity ( July 1 to September 30, 2020).

Also Read: Sukanya Samriddhi Account: How to open an SSY account and check the balance online

PPF has been a popular investment over several decades and witnessed varying interest rate cycle. Suits all but keep your asset allocation in focus as going overboard ( especially salaried) in debt may not be the right approach.

National Savings Certificates (NSC)
NSC is an investment with a 5-year tenure. NSC requires only a lump sum payment and there is no need to pay further contributions. On maturity, a fixed amount is received which is known right at the time of investment. NSC is issued in denominations of Rs. 100, Rs. 500, Rs.1000, Rs.5000, Rs.10,000.

Currently, the interest rate is 6.8 per cent per annum and paid on maturity ( July 1 to September 30, 2020). The interest earned is taxable and is re-invested for the initial four years that qualifies for Section 80C benefit.

At times, NSC rates are higher than bank deposits. Choose accordingly. Suits those who do not need regular income.

Sukanya Samriddhi Yojana (SSY)
SSY is an investment for 21 years but the deposits need to be made only for the initial 15 years. If your objective is to save for your girl child, this scheme fits the bill. It can be opened in the name of the girl child below 10 years. So if the girl child’s age is 7, the scheme will mature when she turns 28.

When the girl turns 18, a maximum of 50 per cent of the account balance of the preceding year may be withdrawn for the purpose of higher education of the girl. The rules also permit final closure anytime after the girl child turns 18 years for the purpose of her marriage.

A minimum initial deposit of Rs 250 ( earlier it was Rs 1,000) is required. Thereafter, a minimum of Rs 250 ( earlier it was Rs 1,000) up to a maximum of Rs 1.5 lakh can be deposited in the account annually.

Currently, the interest rate is 7.6 per cent per annum and paid on maturity ( July 1 to September 30, 2020). As far as taxation is concerned, the investment qualifies for tax benefit under Section 80C and the interest earned is tax exempt similar to PPF.

SSY has a high fixed rate of return and comes with tax-free interest. Funds get earmarked for child needs. A must-have investment in one’s portfolio if conditions are met.

Post Office Time Deposit Account (TD)
If you are looking for a better option than bank FD, the time deposits in the post office may suit you. However, only the 5-year deposit qualifies for tax benefit under section 80C. There is no maximum limit of investment but tax benefit is restricted to Rs 1.5 lakh

Currently, the interest rate is 5.8 per cent per annum, payable annually but calculated quarterly ( July 1 to September 30, 2020). The interest earned annually is fully taxable and to be added to one’s ‘Income from other sources’.



Senior Citizen Savings Scheme (SCSS)
SCSS is an investment for 5-years and available only to those who are 60 years and above. An individual of the age of 55 years or more but less than 60 years who has retired on superannuation or under VRS can also open account subject to the condition that the account is opened within one month of receipt of retirement benefits and the amount should not exceed the amount of retirement benefits. One can open more than one account but the combined limit is capped at Rs 15 lakh.

Currently, the interest rate is 7.4 per cent per annum payable quarterly ( July 1 to September 30, 2020). Similar to time deposits, the interest earned is fully taxable and to be added to one’s ‘Income from other sources’.

After maturity, the account can be extended for further three years within one year of the maturity by giving application in the prescribed format. In such cases, the account can be closed at any time after the expiry of one year of extension without any deduction.

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