No Interest On National Savings Scheme From Oct 1: What This Means For You

The central government has announced that depositors in the National Savings Scheme (NSS) must withdraw funds from NSS 87 and NSS 92 accounts by September 30, 2024. After this date, no further interest will accrue. While both schemes were discontinued years ago, many long-term depositors continued holding these accounts for their security and tax benefits. In light of this change, the Gujarat Chamber of Commerce and Industry (GCCI) has requested a tax-free one-time withdrawal option until March 2025, advocating for a tax-free transition for senior and long-term depositors who rely on NSS for financial security.

Introduced in 1987, NSS 87 and NSS 92 allowed contributions of up to Rs 40,000 per year with tax-deductible benefits, initially offering an 11 per cent interest rate, later reduced to 7.5 per cent. “These accounts offered flexibility with tax-free interest if funds were retained, but withdrawals were taxable,” explains Sanket Prabhu, director and head of wealth, Finhaat. GCCI highlights that many depositors relied on NSS for tax-free inheritance provisions and have appealed to the Central Board of Direct Taxes (CBDT) to allow extended, tax-free withdrawals for a smoother transition until March 2025.

What This Means For You

This change significantly impacts long-term depositors, particularly senior citizens who have kept funds in NSS 87 and NSS 92 accounts for their security. Many have now withdrawn their deposits, but those who continued to hold these accounts are advised to consider alternative investments.

Says Rajani Tandale, senior vice president, mutual fund, 1 Finance, a personal finance advisory firm said that the government’s decision to stop interest payments on National Savings Scheme (NSS) accounts from October 1, 2024, has left many senior citizens in a tough spot. “For years, they relied on this steady income for their retirement, only to now face the sudden loss of interest earnings and tax burdens when they withdraw their savings. For seniors, especially those in lower tax brackets, this could mean a significant financial hit, potentially pushing them into a higher tax bracket and increasing their burden,” says Tandale. 

“People are urging the government to provide relief—whether through a one-time tax exemption, a reduced tax rate on NSS withdrawals, or by allowing them to transfer their funds into options like the National Pension System (NPS), Public Provident Fund (PPF), or a conservative mutual fund with a Systematic Withdrawal Plan (SWP) to maintain a steady income. Offering this support to NSS investors could make a meaningful difference for seniors who counted on NSS as a reliable part of their retirement,”adds Tandale. 

“For those impacted by this change, it may be time to diversify investments based on individual goals, risk tolerance, and tax needs,” suggests Priti Rathi Gupta, Founder of LXME. Options like the senior citizen savings scheme and equity-linked savings schemes offer tax-saving benefits, while fixed deposits, debt mutual funds, and other government schemes provide stable alternatives.

“Given that these accounts no longer yield interest, depositors should consider closing them and reallocating their funds to better-suited options,” says Gaurav Goel, Sebi-registered investment advisor.

“The NSS has lost relevance, and other secure options managed by the government of India can provide similar safety and returns,” he adds.