• India
  • Apr 02

Explainer / Small Savings Schemes

The government revoked a steep interest rate cut on small savings schemes such as Public Provident Fund (PPF) and National Savings Certificates (NSC), with Finance Minister Nirmala Sitharaman saying it was an “oversight”. 

It has been decided that the rate of interest on various small savings schemes for the first quarter of 2021-22 starting from April 1 and ending on June 30, 2021 shall remain unchanged from those notified for the fourth quarter January 1, 2021 to March 31, 2021 of 2020-21, the finance ministry said in an office memorandum on April 1.

As rates have been restored, PPF and NSC earns an annual interest rate of 7.1 per cent and 6.8 per cent, respectively.

One-year term deposit scheme will continue to earn an interest rate of 5.5 per cent during the first quarter of the current fiscal while the girl child savings scheme Sukanya Samriddhi Yojana account will earn 7.6 per cent as against reduced rate of 6.9 per cent.

The interest rate on the five-year Senior Citizens Savings Scheme would be retained at 7.4 per cent. The interest on this scheme is paid quarterly.

Interest rate on savings deposits will be restored at 4 per cent annually from the reduced rate of 3.5 per cent.

Public Provident Fund

• The Public Provident Fund (PPF) scheme is a popular long-term saving-cum-investment product, mainly due to its combination of safety, returns and tax savings.

• The PPF was first offered to the public in 1968 by the finance ministry’s National Savings Institute. 

• In December 2019, the government notified the Public Provident Fund (PPF) Scheme, 2019 under Section 3A of the Government Saving Promotion Act, 1873 thereby replacing the Public Provident Fund (PPF) Scheme, 1968.

• Investors use the PPF as a tool to build a corpus for their retirement by putting aside sums of money regularly, over long periods of time 

• The PPF has a minimum tenure of 15 years, which can be extended in blocks of 5 years. 

• It allows a minimum investment of Rs 500 and a maximum of Rs 1.5 lakh for each financial year. 

• Tax benefits are available under Section 80C of Income Tax Act.

Sukanya Samriddhi Account

• The government launched the Sukanya Samriddhi Account programme along with the Beti Bachao, Beti Padhao scheme in January 2015. 

• According to the finance ministry, the scheme has been a great success. 

• Till November 2020, a total of 1.83 crore Sukanya Samriddhi Accounts have been opened with deposits amounting to Rs. 58,822.62 crore.

• Despite being a small savings scheme, the Sukanya Samriddhi Account has the potential to have a phenomenal impact on the lives and self esteem of young girls in the country. The scheme aims to ensure a bright future for the girl children by facilitating their education and marriage expenses.

• Under the scheme, a parent or legal guardian can open an account in the name of the girl child until she attains the age of ten years. As per the government notification on the scheme, the account can be opened in any post office branch and designated public sector banks.

• The minimum deposit that needs to be every year is Rs 250 (earlier it was Rs 1,000), and the maximum amount that can be deposited in a year is Rs 150,000. 

• The account will be valid for 21 years from the date of opening, after which it will mature and the money will be paid to the girl child in whose name the account had been opened. 

• Deposits can be made up to 14 years from the date of opening of the account. After this period the account will only earn interest as per applicable rates.

• In case the required minimum annual deposit is not made by a parent or a guardian, the account will cease to be active. 

• Premature withdrawal – withdrawing money before the completion of the maturity period of 21 years – can only be made by the girl child in whose name the account has been opened after she attains the age of 18 years. 

• This withdrawal will also be limited to 50 per cent of the balance standing at the end of the preceding financial year, and will only be allowed for the purpose of higher education or if the girl intends to get married. 

• Tax exemption is one of the greatest advantages of the Sukanya Samriddhi Account programme. The deposits made to the account, and also the proceeds and maturity amount would be fully exempted from tax under section 80C of the Income Tax Act.

Kisan Vikas Patra

• Kisan Vikas Patra (KVP), a certificate savings scheme, was launched by the government on April 1, 1988. The scheme provided facility of unlimited investment by way of purchase of certificates from post offices in various denominations. 

• The scheme was very popular among the investors and the percentage share of gross collections secured in KVP was in the range of 9 per cent to 29 per cent against the total collections received under all National Savings Schemes in the country.

• It was discontinued in 2011. The government re-launched the scheme in 2014 and is available in post offices.

• Investment can be made in denomination of Rs 1,000, 5000, 10,000 and 50,000. There is no upper ceiling on investment. 

Senior Citizens Savings Scheme

• The government introduced the Senior Citizens Savings Scheme (SCSS) in August 2004. The scheme offers a risk free avenue of investment with attractive returns to all senior citizens of the country. 

• Citizens of 60 years of age and above are eligible to invest.

• Those who have retired under a voluntary or a special voluntary retirement scheme and have attained the age of 55 years are also eligible to invest their retirement benefits.

• The upper limit of investment under this scheme is Rs 15 lakh.

• The deposits made in the scheme are exempted from income tax under section 80C of Income Tax Act.

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