SMALL SAVINGS, BIG GOALS

Sanjay Khurana

WHEN we think of saving money, small savings help in achieving big financial goals. Besides building a handsome corpus for future needs, these instruments inculcate the habit of a systematic savings plan which comes in handy to meet exigencies. With the increase in interest rates of up to 70 bps on small savings for the first quarter of the current fiscal, these schemes are gaining traction and are considered the safest mode of investment. Let us discuss some of the popular small savings schemes.

Post Office Savings Account

Any adult, two adults in a joint name, a guardian on behalf of a minor, or a minor above 10 years in his own name, can open this account. Interest at the rate of 4 per cent per annum is paid on these accounts. The minimum amount for opening the account is Rs 500. There is no maximum limit. Interest income up to Rs 10,000 from all savings accounts is exempted u/s 80TTA of the Income Tax Act.

National Savings Recurring Deposit Account

It is a five-year recurring deposit account. It fetches an interest of 6.2 per cent per annum. It can be opened with a minimum deposit of Rs 100 per month and there is no maximum limit.

Loan facility: If an account holder has deposited 12 instalments and the account is continued for one year, he/she can avail loan facility up to 50 per cent of the balance credit.

Premature closure: The account can be closed prematurely after three years. PO savings account interest will be paid if the account is closed prematurely even one day before maturity.

Post Office Monthly Income Scheme

It can be opened with a minimum of Rs 1,000 and in multiples of Rs 1,000. A maximum of Rs 9 lakh can be deposited in a single account and Rs 15 lakh in the joint account. Interest at the rate of 7.4 per cent per annum is paid and it is taxable.

Maturity: Account may be closed on expiry of five years. In case the account holder dies before maturity, the account may be closed and amount will be refunded to the nominee/legal heirs.

Senior Citizen Savings Scheme (SCSS)

An individual above 60 years and retired civilian employees above 55 years and below 60 years can open this account, subject to the condition that investment is made within one month of receipt of retirement benefits. The account can be opened in an individual capacity or jointly with spouse only.

Deposit: The minimum deposit shall be Rs 1,000 and in multiples of Rs 1,000, subject to a maximum limit of Rs 30 lakh in all SCSS accounts. Deduction is available u/s 80C of the Income Tax Act, 1961.

Interest: Interest at the rate of 8.2 per cent per annum is payable on a quarterly basis. If the interest payable every quarter is not claimed by an account holder, such interest shall not earn additional interest. Interest is taxable if the total interest in all SCSS accounts exceeds Rs 50,000 in a financial year.

Premature closure: The account can be prematurely closed any time. If closed before one year, no interest will be payable and if any interest has already been paid, it will be recovered.

Maturity: The account may be closed after five years. In case of death of the account holder, from the date of death, account shall earn interest at the rate of PO Savings Account. In case the spouse is a joint holder or a sole nominee, account can be continued till maturity if the spouse is eligible to open an SCSS account and does not have another SCSS account.

Extension of account: An account holder may extend the account for a further three years from the date of maturity. The account can be extended within one year of maturity.

Public Provident Fund (PPF)

Any resident Indian or a guardian on behalf of a minor/person of unsound mind can open an account. The account can be opened with a minimum deposit of Rs 500 and a maximum of Rs 1.5 lakh can be deposited in a financial year. The deposits qualify for deduction u/s 80C of the Income Tax Act.

Interest: From April 1, 2023, interest is payable at the rate of 7.1 per cent per annum (compounded yearly). The interest earned is tax-free under the Income Tax Act.

Loan: Loan can be taken after one year from the end of the financial year in which the initial subscription was made.

Withdrawal: A subscriber can make one withdrawal during a financial year after five years. The amount of withdrawal can be up to 50 per cent of balance of the credit at the end of fourth preceding year or at the end of preceding year, whichever is lower.

Maturity: The account will mature after 15 years. On maturity, the depositor can take maturity payment or retain maturity value in his/her account further without deposit or can extend his/her account for a further block of five years and so on.

Premature closure: Premature closure is allowed after five years subject to the following conditions:

i) In case of life-threatening disease (account holder, spouse or dependent children).

ii) Higher education of account holder or dependent children.

iii) Change of resident status of account holder (i.e. becoming an NRI).

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

Sukanya Samriddhi Account

The account can be opened in the name of a girl child below the age of 10 years. Only one account can be opened either in Post Office or in any bank in the name of the girl child. This account can be opened for a maximum of two girls in a family.

Deposits: Account can be opened with a minimum initial deposit of Rs 250 and maximum Rs 1.5 lakh in a financial year. The deposit can be made for a maximum up to 15 years from the date of opening. It qualifies for deduction u/s 80C of the Income Tax Act.

Interest: Interest at the rate of 8 per cent per annum (with effect from April 1, 2023) is payable and is calculated on a yearly basis.

Withdrawal: Withdrawal can be made after the girl child attains the age of 18 or passes Class X. Withdrawal may be taken up to 50 per cent of balance available at the end of the preceding financial year.

Premature closure: The account may be prematurely closed after five years of account opening on the following conditions:

i) On the death of account holder.

ii) On extreme compassionate grounds such as life-threatening disease (account holder) or death of the guardian who operated the account.

Maturity

(i) After 21 years from the date of account opening.

(ii) Or at the time of wedding of girl child after attaining the age of 18 years.

National Savings Certificate (NSC)

Any adult or a joint account (up to three adults) or a guardian on behalf of a minor or a minor above 10 years in his own name can open an account.

Deposit: A minimum of Rs 1,000 and in multiples of Rs 100 thereafter can be deposited. There is no maximum limit. Any number of accounts can be opened under the scheme. The deposits qualify for deduction under Section 80C of the Income Tax Act.

Interest: Interest is payable at the rate of 7.7 per cent compounded annually but payable at maturity.

Maturity: The deposit will mature on completion of five years from the date of the deposit.

Kisan Vikas Patra (KVP)

Any adult or a joint account (up to three adults) or a guardian on behalf of a minor or a minor above 10 years in his own name can open an account.

Deposit: The minimum amount for opening of an account is Rs 1,000 and in multiples of Rs 100 thereafter. There is no maximum limit. Any number of accounts can be opened under the scheme.

Interest: Interest at the rate of 7.5 per cent compounded annually. The invested amount is doubled in 115 months (9 years and 7 months).

Maturity: The deposit shall mature on the maturity period prescribed by the Ministry of Finance from time to time as applicable on the date of deposit.

Mahila Samman Savings Certificate-2023

Any woman can open an account or a guardian on behalf of a minor girl.

Deposit: A minimum of Rs 2,000 and maximum of Rs 2 lakh.

Interest: The deposit is eligible for 7.5 per cent interest per annum. Interest will be compounded quarterly and credited in the account and paid at the time of closure of the account.

Withdrawal: 40 per cent withdrawal of eligible balance can be taken after one year from the date of account opening.

Maturity: The account will mature after two years from the date of opening. 

Big deposits under scanner

The I-T Department has detected ‘benami’ deposits of Rs 50 lakh and above in small savings schemes such as NSC and KVP in the name of minor children and domestic helps. The Centre has asked post offices to re-initiate the KYC process for all accounts with deposits of over Rs 10 lakh.