Post office schemes are offering higher rate of interest than bank fixed deposits to investors. If you are looking to save money only in investments providing a fixed return for a period of 1-year to 10-years, the small savings could be a better option to explore.
In most leading banks, the rate of interest on 1-year to 10-year fixed deposits is 5 per cent to 6 per cent. However, for senior citizens all banks provide an additional rate of 0.5 per cent on the amount invested. While in the post office, the rate of interest ranges from 5.5 per cent to 7.6 per cent depending on the scheme. 5-year NSC offers 6.8 per cent while the post office monthly income plan provides 6.6 per cent on the investment made.
Apart from a slightly higher rate of interest, most small savings schemes also come with tax benefits. In the case of bank FD, only the special tax saving 5-year bank FD offers the tax benefit.
Here are five post office investments that help reduce tax liability as they come with tax benefits under Section 80C of the Income Tax Act, 1961.
1. Public Provident Fund Account (PPF )
Public Provident Fund Account (PPF ) is a 15-year scheme that requires regular contributions to be paid for 15 years. One may exit from PPF after 5 years or avail a loan from 4th year and even make partial withdrawals after 7th year.
One is allowed to open only one account in own name while another PPF account may be opened in a minor child’s name. The minimum of Rs 500 and maximum of Rs 1.5 lakh ( self plus minor account) in each financial year can be deposited in PPF. The investment made in PPF qualifies for tax benefit under Section 80C and the interest earned is tax free. Presently, the PPF interest rate is 7.1 per cent per annum, compounded annually and paid on maturity.
2. National Savings Certificates (NSC)
If you want to invest for 5-years with fixed return and also tax benefit, NSC suits you. Presently, NSC rate of interest is 6.8 per cent, while the 5-year bank FD with tax benefit comes at around 5.5 per cent. NSC requires only a lump sum payment and there is no need to pay further contributions. On maturity, a fixed amount is paid to the investor.
3. Sukanya Samriddhi Yojana (SSY)
Sukanya Samriddhi Yojana (SSY) is an investment that earmarks funds exclusively for the needs of girl child. SSY, a 21 year scheme, can be opened in the name of girl child below 10 years only. Premature closure of the scheme is allowed after 5 years only on medical grounds. Also, when the girl turns 18, a maximum of 50 per cent of the account balance of the preceding year may be withdrawn for the purpose of higher education of the girl. Further, the rules permit final closure anytime after a girl turns 18 years for the purpose of her marriage. Currently, SSY interest rate is 7.6 percent per cent per annum, compounded annually and paid on maturity. The investment qualifies for tax benefit under Section 80C and the interest earned is tax exempt.
4. Post Office Time Deposit Account (TD)
The time deposit (TD) in a post office is somewhat similar to a bank fixed deposit. While the time deposits in a post office are for 1, 2 , 3 and 5 years, its only the 5-year TD that comes with section 80C tax benefit. There is no maximum limit but tax benefit is restricted to Rs 1.5 lakh. Interest earned is, however, fully taxable and to be added to one’s ‘Income from other sources’. Currently, the interest rate on 5-year post office time deposit is 6.7 per cent per annum.
5. Senior Citizen Savings Scheme (SCSS)
Senior Citizen Savings Scheme (SCSS),a 5-year investment scheme, is a popular investment option for those who are 60 years and above. One may open more than one SCSS account but the combined limit is capped at Rs 15 lakh. Currently, the interest rate on SCSS is 7.4 per cent per annum, payable quarterly. Interest earned is fully taxable and to be added to one’s ‘Income from other sources’.
Several post office schemes are the first choice of investors looking for fixed and assured income and most of them come with tax benefits under Section 80C of the I-T Act. All of them are sovereign backed investments wherein the principal invested and the interest earned are guaranteed by the government. The interest rate of the small savings post office investments are set by the government at the start of every quarter of the financial year.