Government Savings Schemes

Introduction

Saving schemes are financial products that are an effective tool to help individuals prepare financially for any unforeseen personal and medical emergencies. Such schemes help in meeting the personal or family aspirations like additional medical expenses, educational expenses, marriage, etc. In many cases, income from saving schemes also serves as an only or an additional source of income. Savings Schemes other than its numerous benefits helps instill a disciplined habit for regular savings. The various savings schemes in the market that are initiated or launched by the Government of India or via public sector institutions or banks are known as the Government savings schemes. Such schemes are favored over many other similar schemes available in the market. These government savings schemes have a lot of features and benefits for the investors and are relatively safer as they have the government backing them. The rate of interest is usually higher and is revised in every quarter or on a half yearly basis depending on various factors like the market conditions, fiscal deficit, RBI reserves, etc.

The details of some of the key Government Savings Schemes are mentioned here.

NSC (National Savings Certificate)

National Savings Certificate is a form of tax saving investment that can be bought by the individuals via a savings certificate issued by the post office of India. This investment option is available only to the residents of the country and is a low risk investment giving fixed return to the investors. Thus, such an instrument is usually preferred by the risk averse individuals.

The interest rate on NSC is decided by the Government of India at the start of every financial year but can be changed from time to time depending on the market volatility and various other factors determining the rate of interest of any product.

The current rate of interest on the NSC is 7.9% and it is compounded annually. The interest is payable only at the time of maturity and is not liable for a TDS deduction under the Income Tax Act, 1961.

Currently, the only available option of NSC for investing is the NSC VIII category which can be held by the investor in the following modes,

Single Holder Type Certificate – 

The investor in this case can hold the National Savings Certificate in his/her individual capacity or on behalf of a minor.

Joint A Type Certificate – 

The NSC in this case is held jointly by two holders and the proceeds are to be shared equally by both the holders at the time of maturity.

Joint B Type Certificate – 

In this type of certificate, the investor gets the option to hold the NSC jointly but the proceeds at the time of maturity are entitled only to a single holder.

Eligibility for NSC

The eligible investors for the NSC are,

• All the resident Indians are eligible to invest in NSCs except the Trusts and HUFs (Hindu Undivided Family).
• The Karta of the HUF, however, is eligible to invest in the NSC in his/her individual capacity.
• The investment in NSC is not open to the NRIs, however, if a resident becomes an NRI prior to the maturity of the NSC, such investment is still valid and can be held till maturity.

Features and Benefits of the NSC

The various key features and benefits of the Government issued NSC are highlighted below.

• The NSCs are issued by the Government of India but can be purchased easily at any of the post offices across the country.
• The minimum amount of investment that can be made under NSC is Rs. 100 with no upper limit on the amount of investment that can be made by an investor
• Also, such certificates are available in the denomination of Rs. 100, Rs. 500, Rs. 1,000, Rs. 5,000 and Rs. 10,000.
• The investor has the facility to nominate a person who will receive the corpus fund invested in the event of death of the investor prior to maturity which is a period of 5 years (fixed). Such nominations can be done via Form 1 or Form 2. Furthermore, any change in nomination can be done via Form 3.
• The principal amount invested under NSC is eligible for a tax deduction under section 80C of the Income tax Act, 1961.
• The interest earned on such investment is deemed to be reinvested for the initial 4 years as the interest is compounded annually but paid at the time of maturity. Hence such interest is also eligible for the deduction under section 80C of the IT Act, 1961. However, the interest for the fifth year is not to be re-invested as it is the final year of the investment and hence is to be paid to the investor along with the entire investment. Such interest received at the end of 5 years or at maturity is taxable in the hands of the investor according to the applicable tax slab rate of the investor.
• The interest on the NSC is one of the highest rates in the market with lower risk compared to the other similar products in the same investment category as such investment is backed by the government, thus making it a very lucrative or appealing investment for the prospective investors.
• NSCs are also widely acceptable as collateral by the majority of banks and the NBFCs for the issue of loans in case of any need.

Public Provident Fund

The Public Provident Fund scheme was introduced by the National Savings Institute, under the Finance Ministry of India, in 1968. It is one of the most effective savings instruments especially with regards to Tax Savings since the investors get a tax deduction under section 80C of the IT Act, 1961 up to a maximum of Rs. 1,50,000.

Eligibility under PPF

• Any person resident of India can open a PPF account for himself or in the name/behalf of any family member. The minimum eligible age is 18 years.
• There is no upper age limit in opening the PPF account.
• A PPF account can also be opened on behalf of a minor but the investment in this case cannot be beyond Rs. 1,50,000 including the investment of the guardian.

Salient features and benefits of PPF Savings Scheme:

• Current rate of Interest is 7.9% for the period of July 2019 to March 2020 and is then compounded annually.
• Minimum annual investment under the scheme is Rs. 500 and a maximum is Rs. 1,50,000.
• The amount is payable in lump sum or through a maximum of 12 deposits in one financial year.
• The minimum tenure under the scheme is 15 years and can be extended up to a maximum of 5 more years up on the discretion of the investor.
• The investment is also flexible in nature as it can be transferred from one post office or bank to another.
• Investors are eligible for tax deductions under Sec. 80C of the IT Act, 1961 and the accumulated interest is completely tax-free.
• The accumulated savings under PPF are accepted by banks and financial institutions as security/collateral for applying any loan from the third financial year.

Kisan Vikas Patra

Kisan Vikas Patra (KVP) was launched in the year 1988 and is one of the most preferred saving schemes from the Indian Postal Department. The scheme, although a tremendous success, was discontinued in 2011 due to being misused. However, the scheme was re-introduced in 2014 as a result of high demand. This scheme is usually preferred by the risk averse class of individuals

Eligibility under the Scheme

The eligible persons under the scheme are,

• The resident Indians above the age of 18 years
• Such scheme is open for investments even under the name of or behalf of the minors or jointly with another individual.
• The scheme is also available to trusts
• HUFs and NRI are not eligible for investment under this scheme.

Salient features and benefits of KVP Savings Scheme:

• The key feature of the scheme is that the investors can double the principal amount in 113 months (9 years & 5 months) at an interest rate of 7.6%.
• This is available only in the multiples of Rs. 1,000, Rs. 5,000, Rs. 10,000 and Rs. 50,000.
• The minimum investment under the scheme is Rs. 1,000 and does not have a maximum/upper limit.
• It can be encashed prematurely after 2½ years from the issuance date without affecting the rate of interest or attracting penalties.
• Withdrawals within a year do not attract any interest and also are subject to penalties.
• Withdrawals after 1 years and before the completion of two and half years are subject to a reduced rate of interest.
• The account of this savings scheme can be transferred from one bank or post office to another or from one individual to another.

National Savings Scheme (NSS)

National Savings Scheme (NSS) is a Government of India backed savings scheme whereby the investor receives the entire sum assured after the completion of its maturity tenure. The rate of interest is compounded annually. This scheme also offers flexible tenure which allows an extension of the term as per the investor’s investment objectives. The scheme is also eligible for tax deduction under Section 80 C of the Income Tax Act, 1961.

Eligibility under NSS

• Any resident Indian can invest under the NSS
• The exclusions from the scheme include HUFs, Trusts and NRIs

Salient features and benefits of NSS Savings Scheme:

• The NSS offers fixed and assured returns after completion of the term or at maturity. Such schemes are not market-linked like some other government schemes.
• The rates on small saving schemes are eligible to be revised and updated every quarter.
• NSS schemes like PPF, Sukanya Samriddhi Yojana, NSC etc., attract tax exemptions of up to Rs. 1,50,000 under section 80C of Income Tax Act, 1961. The interest earned on schemes like Sukanya Samriddhi Yojana and PPF is also tax-free.
• Such schemes do not permit premature withdrawals unless under exceptional circumstances like sudden death of the investor.

Senior Citizens Savings Scheme (SCSS)

This scheme caters to the senior citizens in India and was planned keeping in mind the unique needs of individuals of at least 60 years of age. It also allows the individuals between 55 years and 60 years who have retired or have opted for Voluntary Retirement Scheme (VRS) to be eligible to apply for Senior Citizens Savings Scheme, but only when the savings scheme account has been issued within one month of the receipt of such retirement benefits.

Eligibility under the scheme

• All the resident individuals of the country are eligible under the scheme that are over the age of 60 years.
• Individuals of the age of 55 years or more but less than 60 years are also eligible subject to certain conditions.

Salient features and benefits of Senior Citizens’ Savings Scheme:

• The applicable rate of interest for Senior Citizens Savings Scheme is 8.6% per annum that is payable from the date of deposit i.e., 31st March, 30th September and 31st December in the initial instance and after that is payable on the last date of each quarter.
• The tenure of this saving scheme is 5 years.
• The minimum deposit to be made under the scheme is Rs. 1,000 and the maximum is Rs. 15,00,000 (in multiples of Rs. 1,000)
• The investor can open multiple accounts as long as the maximum limit under the scheme is not violated.
• The investor can open an account under the scheme in cash if such investment is up to Rs. 1,00,000, beyond which any investment made has to be in the form of cheque.
• The account of the investor is easily transferable from one bank or post office to another.
• The terms for closing the savings scheme account before the completion of its full term or maturity are
• No interest on account closed before the completion of 1 year and the interest if paid, to be recovered
• 1.5% of the deposit amount to be deducted  incase of completion of one year but before the completion of 2 years
• Deduction of 1.0% of the amount if the account is closed post the completion the second year.

• The scheme allows the extension of the tenure to a maximum of 3 years after the minimum maturity term of 5 years, as per the discretion of the investor. In case the investor wants to withdraw the amount after the completion of 1 year of this extended term, the savings scheme account can be closed prematurely without any deductions.
• The accumulated interest under the scheme is subject to TDS (Tax deducted at source), in the event that the interest exceeds Rs. 50,000 annually.

The investment under this savings scheme enables the investors to avail tax deductions under Section 80C of Income Tax Act, 1961 with effect from 1st April, 2007.

Sukanya Samriddhi Yojana (SSY)

The Sukanya Samriddhi Yojana (SSY) savings scheme was introduced by the Indian Ministry of Finance and launched by the Honorable Prime Minister of India, Mr. Narendra Modi. This scheme is part of the ‘Beti Bachao, Beti Padhao’ initiative of the Government of India and it aims to provide financial security to the future of the girl child and support her future ambitions.

Eligibility under the scheme

• An account under this scheme can be opened only in the name of girl child by her parents or legal guardians.
• The maximum age of the girl child at the time of account opening has to be below the age of 10.
• A person cannot open Multiple Sukanya Samriddhi accounts for a single girl child.
• Only two SSY accounts are allowed for a family i.e. one for each girl child (three accounts can be opened in case of twin girls)

Salient features and benefits of SSY Savings Scheme:

• The annual rate of interest is 8.40% on the principal amount and is one of the highest rate of Interest in similar saving schemes available in the market.
• Such accounts can be opened at any post office or authorized banks in India.
• Deposits made under the scheme have to be made in the denominations of Rs. 100. The initial deposit that has to be made under the scheme is a minimum of Rs. 1,000 to a maximum of Rs. 1,50,000 per year.
• The maturity period under the scheme is 21 years from the date of issuance and the account holder has to invest into the account for a maximum period of 15 years.
• This savings scheme account can be transferred from one bank or post office to another bank or post office anywhere within India.
• The scheme allows premature withdrawal from the account when the girl reaches the age of 18 years. A maximum of 50% of the balance is permitted to be withdrawn at such occasion.
• Minimum deposit to be made per financial year is Rs.250.
• A penalty of Rs. 50 per financial year is levied in the event of non-payment of the minimum amount and the account can then be revived.

The scheme also has an online deposit facility by depositing the amount through Intra Operable Net banking and IPPB Saving Account.

Post Office Savings Scheme

The Post Office Savings Scheme is one of the most secure and reliable saving schemes available to the individual. It is mostly suitable for investors that are risk averse and require fixed and assured income on their investment. The scheme has various highlights like assured high returns, centralized and streamlined process, quick and hassle-free investment and receipt of interest income along with the inherent features of efficient investment and saving schemes in India.

Eligibility under the Scheme

• The investment under the scheme is open to all the resident individuals
• A person can open an account under this scheme on behalf of a minor or a person of unsound mind.
• Joint accounts can be opened under this scheme for a maximum of 2 individuals.
• A minor above the age of 10 years is also eligible for opening an account under the scheme.

Following are the products of Post Office Savings Scheme -

• Post Office Savings Account
• 5 Years Post Office Recurring Deposit Account
• Post Office Time Deposit Account
• Post Office Monthly Income Account Scheme
• Senior Citizens Saving Scheme
• 15 Years Public Provident Fund Account
• National Savings Certificates (NSC)- 5 Years NSC (VIII Issue)
• Kisan Vikas Patra (KVP)
• Sukanya Samriddhi Account

Salient features and benefits of Post Office Savings Scheme:

• An account under this scheme can be opened only in cash.
• The minimum balance that is to be maintained under the account is Rs. 500.
• A annual maintenance fee of Rs. 100 is deductible from the account in the event of not maintaining such minimum balance and if up on such deduction the balance in the account becomes NIL, the account is deemed to be closed
• The interest earned on this account up to Rs. 10,000 is eligible for tax benefits, i.e. is considered to be tax free from the financial year 2012-13.
• A minor has to apply for conversion of account under his/her own name up to the age of 18 years.
• The scheme also provides a nomination facility to the investors anytime during the tenure of the account.
• The investor can open a single account in a post office although the scheme allows the investor to hold multiple accounts subject to the terms of the scheme laid in this regard.
• The investor has to perform at least one transaction or withdrawal from his/her account in every three financial years in order to keep the account active.

Employees Provident Fund (EPF)

The Employees Provident Fund (EPF) was introduced by the Employees' Provident Fund Organization (EPFO). This is a savings scheme initiated by the Government of India with the intention to safeguard the working Indian population by making it mandatory to contribute financially into a Provident Fund (PF) account. The idea was to ensure a retirement fund for the working class of the country and enable them to be financially independent even in their retirement.

It also serves another purpose as the scheme also offers them the benefit of financial security during unforeseen emergencies as well as planned financial ventures. EPF is among the top ranking government savings schemes with respect to its popularity due to various attractive features and benefits and has one of the largest subscriptions in comparing various similar investment options available in the market.

Eligibility under the scheme

• The eligible members are those employees earning a salary/pay that is less than Rs. 15,000 (basic salary + dearness allowance). Such members have to mandatorily be part of the EPF.
• Employees earning more than the stipulated RS. 15,000 can voluntarily join the EPF Scheme.
• Every organization having 20 or more employees has to mandatorily register under the EPF scheme.
• Organizations having less than 20 employees can voluntarily register with the EPFO and avail the benefits under the scheme.

Salient features and benefits of EPF Savings Scheme:

• The scheme entails the employer and employee to contribute 12% of the employee’s monthly salary into this provident fund account every month.
• 8.33% of the employer’s contribution is towards EPS (Employee’s Pension Scheme) and the balance 3.67% towards EPF.
• The current annual rate of interest on the funds accumulated in the EPF account is 8.65% throughout the year and is decided by the government of India at the start of the financial year.
• The interest is credited to the employee’s account on 1st April of every financial year.
• The scheme enables the employee to withdraw 75% of the corpus fund in the event of unemployment after the completion of 1 month of such unemployment and the balance 25% post completion of 2 months after unemployment.
• The members are eligible for tax benefits for their contribution to the EPF.
• Withdrawals from the PF account are not taxable under the IT Act, 1961, if such withdrawal is made after the completion of 5 years of service.
• In the event of unemployment or non-contribution to the EPF account for a continuous period of 36 months, the account is deemed to be inoperative or dormant. The interest is thereafter not compounded on such accounts
• Employees also have the option to contribute more than the stipulated 12% of the basic salary and dearness allowance towards their EPF account. Such voluntary contribution changes the nature of EPF account of the employee and thereafter the EPF account is converted to a Voluntary Provident Fund (VPF) which is nothing but essentially an extension of the EPF account of the employee.
• The UAN of the member enables easy transfer and withdrawal of the PF of the employee via the EPF portal.

Pradhan Mantri Jan Dhan Yojana

This savings scheme has been initiated and launched by the Government of India in the year 2014 targeting the Indian citizens who do not have a bank account in India. The aim of the scheme is to provide cost-effective solutions related to accessing financial services like banking, credit, remittance, insurance, pension, etc.

Eligibility under the scheme

• The eligible applicants under the scheme are all the citizens of the country
• The scheme includes minors above the age of 10 years.

Salient features and benefits of Pradhan Mantri Jan Dhan Yojana Savings Scheme:

• This scheme is open for the citizens of India only.
• The subscribers/account holders are eligible for interest at the rate of 4% on these accounts.
• The scheme provides for accidental insurance cover of Rs. 1,00,000 to the existing account holders and Rs. 2,00,000 for new account holders or RuPay card holders that open an account under the scheme after 28th August, 2018. The main condition for such cover is the use of the RuPay cards across any of the banking mediums like (ATMs, POS, Branch, e-com etc.) at least once in 45 days.
• The beneficiaries also get a life insurance cover of Rs. 30,000.
• Overdraft facility to the extent of Rs. 10,000 subject to certain conditions laid down as per the scheme and no conditions attached for any overdraft up to Rs. 2,000.
• Such overdraft facilities are available after the satisfactory operation of the account for at least 6 months and for only one account per household (preferably to the lady of the household).
• Certain banks also issue cheque books to such account holders, however, such they have to fulfill the minimum criteria set by such banks, if any.
• The scheme aims to target maximum population under its purview and hence the age limit under the scheme has been increased from the original criterion of 18 years – 60 years to the revised age criterion of 18 years – 65 years.
• The account holders under this scheme are also eligible for a DBT (Direct Benefit Transfer) of all the other schemes of the government applicable to them like the Ujjwala Scheme, Saubhagya Scheme.
• They are also given the benefits of easy money transfer across the country.
• They are also provided with a mobile banking facility.

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