Small savings schemes: The number of ITRs filed until July 31 has one surprising aspect, which is 72% of tax filers filed their returns under the new tax regime. Over 7.28 crore income tax returns (ITRs) have been filed for the Assessment Year 2024-25, which means over 5 crore people have moved out of the old tax regime, which offered taxpayers various deduction benefits under Section 80C. Does this data indicate that the new tax regime has impacted government small savings schemes? Experts are of the view that most small saving investors were investing in such schemes due to the tax benefits they were receiving under the old regime and once they move to the new tax regime, most of them would not prefer buying these investment plans.

Small saving schemes like Recurring Deposits (RDs), Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY), Mahila Samman Saving Certificate, Kisan Vikas Patra (KVP), National Savings Certificate (NSC) and Senior Citizen Savings Scheme (SCSS) have been popular investment cum tax saving tolls for middle class taxpayers for years. But as the new tax regime doesn’t offer any deduction benefits on any investments in small savings schemes or any other plans, experts were predicting that this would have an impact on such government-backed plans.

What are small savings plans?

Small savings plans are backed by the Government of India to allow people save some money for their future needs. Most of these investment options get tax benefits under the old tax regime and are risk-free in term of market volatility. The central government announces interest rates on a quarterly basis for these small savings plans.

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Small savings schemes are investment avenues offered and managed by the government that allow individuals to save and accumulate wealth. Currently, the government offers nine types of small saving schemes, including Recurring Deposit (RD), Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY), Mahila Samman Saving Certificate, Kisan Vikas Patra, National Savings Certificate. (NSC) and Senior Citizen Savings Scheme (SCSS).

For the July – September 2024 quarter, the interest rates on small savings schemes are as follows:

1.Post Office Savings Account – 4% per annum;

2.Post Office Time Deposit Account (TD) (Compounded Quarterly):

i. One-year – 6.9% p.a.

ii. Two-year – 7.0% p.a.

iii. Three-year – 7.1% p.a.

iv. Five-year – 7.5% p.a.

3.Post Office Monthly Income Scheme Account (MIS) – 7.4% per annum payable monthly

4.Senior Citizen Savings Scheme (SCSS) – 8.2% p.a. (Compounded Quarterly)

5.15-year Public Provident Fund Account (PPF) – 7.1% p.a. (Compounded annually)

6.National Savings Certificates (NSC) – 7.7% p.a. (Compounded annually)

7.Kisan Vikas Patra (KVP) – 7.5% p.a. (Compounded annually)

8.Sukanya Samriddhi Accounts – 8.2% p.a. (Compounded annually)

Should you invest in small savings scheme?

In the wake of new tax regime launch, it is a tricky question whether you should invest in small savings schemes or not. The answer to this question depends on your investment objective. If your objective is tax-saving then you can continue with such schemes as you will continue to get deduction benefits in the old tax regime under Section 80C of the Income Tax Act. But if you are solely focussing on investment and want to build a good corpus for your retirement, these schemes may not match other market linked or debt linked instruments available. As you can see the best interest rates go up to 8.2% in such plans. On the other hand, investments in bonds and mutual funds can fetch you better returns. Having said that, there are some advantages also when it comes to investing in small savings schemes.

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Three benefits of investing in a small savings schemes:

a) Small savings schemes are government-backed so you can be assured of fixed returns and safety of your investments.

2) Many of these small savings schemes qualify for income tax benefits of up to Rs 1.5 lakh under the Section 80C of the Income Tax ACT.

3) These small saving schemes help you diversify your portfolio.