As part of the quarterly revision in interest rates of small savings
schemes, the interest rates for these schemes saw a sharp hike for the
October to December quarter. For example, the interest rates for the
public provident fund (PPF), 5-year post office deposit scheme, National
Savings Certificate (NSC), Sukanya Samriddhi Account Scheme and Senior
Citizen Savings Scheme have been hiked sharply by 40 basis points.
Expecting a higher influx into small savings schemes after the latest
interest rate
hike, the government had last month announced a sharp
reduction in the gross marketing borrowing estimate for 2018-19. Apart
from attractive interest rates and a secure investment option for small
investors, these schemes also provide income tax benefits.
Some of the post office schemes that offer income tax benefits:
Public Provident Fund (PPF)
After the latest revision, the interest rate on the PPF,
one of the most popular small savings schemes, has been hiked to 8% for
this quarter, up from 7.6% earlier. In terms of income tax benefits,
the PPF, which has a maturity period of 15 years, enjoys EEE, or exempt,
exempt and exempt, status. This means your contributions up to Rs 1.5
lakh a year qualify for tax deduction under Section 80C of the Income
Tax Act; then the interest earned is not taxable, and the amount at
maturity, too, is exempt from tax.
“Public Provident Fund (PPF)
holder will now enjoy interest rate at the rate of 8% whereas it was
7.6% in the last two quarters. Increased rate will benefit small
investors and it would push investments, especially in the PPF, as it
enjoys EEE status in income tax,” says Naveen Wadhwa, DGM of
Taxmann.com.
Even partial withdrawals from the PPF do not attract taxes.
The
minimum amount that must be deposited in a PPF account in a financial
year is Rs 500 and the maximum allowed is Rs 1.5 lakh. An individual can
hold a PPF account in his name and even open one in the name of a
minor, but the combined contribution cannot exceed Rs 1.5 lakh in a
financial year.
Sukanya Samriddhi Scheme
Apart from post offices, the popular girl child savings scheme Sukanya Samriddhi accounts can
be opened in designated banks. The interest rate on Sukanya Samriddhi
accounts has been hiked to 8.5%, from 8.1% earlier. In terms of income
tax implications, the Sukanya Samriddhi scheme also enjoys EEE status,
making it one of the most tax efficient schemes, like the PPF. Annual
deposit of up to Rs. 1.5 lakh in the popular girl child savings scheme
Sukanya Samriddhi Yojana qualifies for tax deduction under Section 80C.
Under
a recently amended rule, known as Sukanya Samriddhi Account (Amendment)
Rules, 2018, the minimum amount required for opening a Sukanya
Samriddhi account has been brought down to Rs 250 from Rs 1,000 earlier.
Similarly, the minimum annual deposit requirement, or the minimum
amount required to be deposited in Sukanya Samriddhi account every year,
has also been lowered to Rs 250 from Rs 1,000 earlier.
5-Year Post Office Time Deposit Scheme
Investment
in the 5-year post office deposit scheme qualifies for tax deduction up
to Rs 1.5 lakh per financial year, just like bank five-year FDs.
Interest earned in this scheme is fully taxable. The scheme comes in
with a lock-in period of five years. In 5-year post office deposit
schemes, the interest is payable annually but calculated on a quarterly
basis. Currently, the 5-year post office deposit scheme fetches 7.8%,
higher than the 7.4% offered in the previous quarter. Post offices also
offer deposit schemes of less than five years, but these do not qualify
for tax benefits under Section 80C.
NSC or National Savings Certificate
The five-year NSC or the National Savings Certificate
have also seen a rate hike. The interest rate on the NSC has gone up to
8%, from 7.6%. In other words, Rs 100 invested in the NSC grows to Rs
146.93 after five years, payable on maturity. There is no upper limit
for investment in the NSC and the minimum investment required is Rs 100.
Deposits
of up to Rs 1.50 lakh in the NSC in a financial year qualifies for tax
deduction under Section 80C. Interest accrued yearly on NSCs is deemed
to be reinvested on behalf of the investor and qualifies for deduction
under Section 80C within the total limit of Rs 1.5 lakh. But as the
final year’s or the fifth year’s interest is not reinvested, it cannot
be claimed as a deduction from taxable income under Section 80C.
Therefore, the last year’s interest income is added to the
certificate-holder’s income and taxed accordingly.
Senior Citizen Savings Scheme (SCSS)
The Senior Citizen Savings Scheme currently pays interest
at the rate of 8.7% per annum, with payouts at the end of each quarter.
The maturity period is five years. An individual cannot invest more
than Rs 15 lakh under this scheme. Investment of up to Rs 1.5 lakh in
the Senior Citizen Savings Scheme qualifies for Section 80C tax benefits
but the interest earned is taxable. An individual of the age of 60
years or more can open the Senior Citizen Savings Scheme account but
there is relaxation for those who have opted for early retirement.