The small tax-saving schemes offered by the government are great options for minimising your tax burden. You could avail yourself of tax deductions and exemptions under different sections of the Income Tax Act, 1961.
A few of these schemes, namely the National Savings Certificate (NSC), Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY) and Senior Citizen Savings Scheme (SCSS), qualify for a deduction of up to Rs 1.5 lakh per annum under Section 80C of the Income Tax Act, 1961.
PPF and SSY also come under the EEE category of government investments with a sovereign guarantee. Here, the amount invested is exempt from tax, the income earned as interest upon maturity is exempt from tax, as is the final maturity amount, thus qualifying for exemption under the EEE rule—exempt during investment, interest earning, and maturity proceeds.
These schemes also offer a higher rate of return compared to bank fixed deposits, which are incidentally taxed at the time of maturity.
Here are some of the basic features of these four schemes.
1. PPF (Public Provident Fund): PPF is a government-sponsored tax-saving and investment plan.It has a 15-year lock-in period and is currently offering an annual return of 7.1 per cent for the January to March 2022 quarter. The government notifies the rate of interest for small saving schemes, including PPF, at the start of every quarter. PPF also offers the option of partial premature withdrawal or closure.
Says Archit Gupta, CEO of Cleartax.in, a tax portal: "You could opt for partial PPF withdrawals, where you could withdraw up to 50 per cent of the amount in your PPF account after seven years. However, the amount you withdraw will be the lower of 50 percent of the balance in the PPF account at the financial year-end or 50 percent of the balance at the end of the fourth financial year preceding the application year. "
In certain situations, such as treating life-threatening diseases or paying for higher education expenses for you and your dependents, you could close your PPF account before 15 years in certain situations. You could also close the PPF account if there is a change in your residency status. A PPF account can be opened either at a post office or with any nationalised bank, such as the State Bank of India or Punjab National Bank. Some private banks, such as ICICI Bank, HDFC Bank, and Axis Bank, also provide this facility.
2.Senior Citizen Savings Scheme: This is a government savings scheme for senior citizens aged 60 or more. It has a five-year lock-in period, and one can invest a maximum of Rs 15 lakh in the scheme (up to Rs 30 lakh jointly with a spouse). This, too, is eligible for a tax break under Section 80C and currently offers a rate of interest of 7.4 percent per year compounded quarterly. Gupta adds, "The scheme has a five-year maturity period, which can be extended by a further three years." However, the interest you earn from SCSS is fully taxable. SCSS interest is compounded quarterly with disbursal on the first working day of January, April, July, and October. It helps senior citizens get regular income for their living expenses.
3.National Savings Certificate: A National Savings Certificate is a fixed-income investment scheme that you can open at any post office branch.It is a sovereign savings bond that encourages subscribers—typically small-to mid-income investors—to invest while saving on income tax. This is also a low-risk fixed income product, similar to a PPF or a post office FD.
You could buy it from the nearest post office in your name, and for a minor, as a joint account holder. It comes with a fixed maturity period of five years. There is no maximum limit on the purchase of NSCs, but you can earn tax benefits only up to Rs 1.5 lakh under Section 80C of the Income Tax Act. The certificates earn interest at a fixed rate of return, which at present is 6.8 percent per annum. The government revises the interest rate regularly.
4.Sukanya Samriddhi Yojana: This is a government-backed small savings scheme for girl children under the Beti Bachao Beti Padhao campaign and is aimed at meeting the funds needed for the higher education needs of the girl child. The parent or legal guardian can open the account under the girl child’s name till the age of 10 years. A family can open two accounts for two girls and a third account for twin girls. The minimum annual contribution required to maintain the account is Rs 250.
