Saving Schemes

Saving Schemes: Overview

Government Savings Schemes – Take Your Pick


We all wish to invest in trusted and time-tested investment options to make sure that our hard-earned money grows systematically and securely. Mostly, government schemes are perceived as good investment due reliability, security and dependability. The Indian government had and has introduced various savings schemes to propel economic development and financial constancy of Indian citizens. Let’s take a look at some of the most popular and trustworthy government savings schemes.


Public Provident Fund (PPF)


Since April 2016, the interest rate offered for PPF accounts is 8.10% and it is compounded yearly. You can open a PPF account for yourself or for a minor to whom you are the guardian. The minimum amount which you need to open a PPF account is Rs. 100. The minimum and maximum deposit in a financial year is Rs. 500 and Rs. 1,50,000 respectively.


You can open your PPF account in any post office which is double handed (managed by post master and a clerk) and above and, can deposit money at a go or in 12 installments. The maturity period is 15 years and you can extend that period by 5 more years within a year of maturity. The maturity amount can be retained without extension and further deposits but you will not be allowed to close the account before 15 years. Your deposits will be deductible under Section 80C of the IT Act and interest is completely tax free. You can start withdrawing every year, from the seventh year onward since the opening of your account. Loan facility is available as well but from the third year.


National Savings Certificates (NSC)


The rate of interest offered on NSCs is 8.10% PA. For example, if you have purchased an NSC of Rs. 100 on or after 1st April 2012, after 5 years, the amount will mature to Rs. 147.61. If you wish to invest in any tax savings schemes, NSC could be a good option as investment up to Rs. 1,00,000 PA is tax-free under Section 80C of IT Act. There is no maximum limit for investment and no tax deduction at source. A good scheme for government employees, businessmen and salaried professionals, NSCs are accepted as collateral securities against loans from banks. It could be a good idea to buy NSCs every month for 5 years and re-invest the matured sum – NSCs are a good way to earn monthly pension upon retirement.

Post Office Savings Schemes

The Indian post offices offer a vast variety of savings schemes.
 

Scheme

Rates / Interest

Scheme Specific Benefits / Features

Benefits – Common to all schemes

Savings Account

The interest rate offered for this scheme is 4% per annum (PA). The minimum opening balance is Rs. 20, which must be given in cash.

  • Cheque facility is available on an existing account.
  • A minimum of one transaction of deposit or withdrawal in three financial years is required to keep the account active.
  • You can deposit and withdraw through any electronic mode in CBS post offices.
  • Interest earned will be tax free up to Rs. 10,000.
  • Cheque facility will be available for minimum account opening balance of Rs. 500. You have to maintain this balance.
  • Account may be opened by an individual.

 

  • Account can be opened by cash or cheque. In case you issue a cheque, the date of realization of the cheque in Government account will be considered as the date of opening of your account.

 

  • Nomination facility is available at the time and after opening of an account.
  • Account can be transferred from one post office to another.
  • Account can be opened in the name a minor of 10 years and above. The minor can open and operate the account and upon attaining adulthood, he/she has to apply for conversion of the account.

 

  • Joint account can be opened by two or three adults. All joint account holders have equal share in each joint account.

 

  • Single accounts can be converted into joint accounts and vice versa.

Recurring Deposit

You can earn interest at the rate of 7.4% PA which will be compounded quarterly.

  • Account can be opened by cash/cheque.
  • You can open any number of accounts in any post office.
  • One withdrawal, up to 50% of the balance, is allowed after one year.

Time Deposit

The interest rates offered are as below:

1 year - 7.1%

2 years - 7.2%

3 years - 7.4%

5 years - 7.9%

Interest is payable annually but calculated quarterly.

The minimum deposit is Rs. 200. There is no maximum limit. However, the amount should be in multiples of 200.

  • ​In CBS post offices, a TD account, upon maturity, will automatically be renewed for the initial period. For example, if you had initially invested for 2 years, it will automatically get renewed for another 2 years. The interest rate applicable on the day of maturity will be applied.
  • If you invest for 5 years, your investment will qualify for tax benefit under Section 80C of the Income Tax (IT) Act.

Monthly Income Scheme (MIS)

Interest offered is 7.80% PA which is payable monthly, in multiples of Rs. 1500.
 

For a single account, you have to deposit a minimum of Rs. 1500. The maximum amount can be Rs. 4.5 lakh.
 

For a joint account, the minimum deposit remains the same. However, the maximum deposit amount can go up to Rs. 9 lakh.

  • There is no restriction on the number of accounts you can open across post offices.
  • You, as an individual, can invest a maximum of Rs. 4.5 lakh in MIS, including your share in joint accounts.
  • Maturity period is 5 years.
  • In CBS post offices, monthly interest can be credited into your savings account operative at any CBS Post offices.
  • If you want to prematurely en-cash the deposit, you can do so after one year. However, there will be a discount (deduction from your deposit) of 2% and 1% for withdrawal before 3 years and after 3 years respectively.
  • For MIS accounts opened on or after 8.12.2007 and up to 30.11.2011, a bonus of 5% (on principal) will be added on maturity.

Senior Citizen Savings Scheme (SCSS) Account

Anyone, who is of 60 years or more can open an SCSS Account. However, if your age is between 55 and 60 years, and you have retired on superannuation or voluntary retirement scheme (VRS), you can open an SCSS account but make sure that you do so within a month of receipt of retirement benefits. Also, the amount should not exceed the amount of retirement benefits.
 

From April 2016, SCSS offers interest at 8.6% PA. You can make one deposit in your account, in multiples of Rs. 1000 and the maximum investment has to be limited to Rs. 15 lakh. If you open your account with an amount above Rs. 1 lakh, you can do so using a cheque only. Early termination is permitted:
 

  • After a year and upon deduction of 1.5% of the deposit
  • After 2 years, upon deduction of 1% of the deposit

For interest exceeding Rs. 10,000 PA, TDS is deducted at source. Your deposit will mature in 5 years and interest can be withdrawn through auto credit, post-dated cheque (PDC) or money order. Under Section 80C of IT Act, SCSS investments qualify for tax benefits.

Kisan Vikas Patra (KVP)

KVPs are available against four denominations – Rs. 1000, Rs. 5000, Rs. 10,000 and Rs. 50,000.  You have to deposit a minimum of Rs. 1000 and the maximum amount can be anything. The amount would double in 110 months and can be transferred from one person to another. You may even change the post office if need be. A KVP can be purchased by one adult or by two adults on behalf of a minor. A KVP has nomination facility and can be encashed after 2.5 years from date of issue.

Sukanya Samriddhi Account

With effect from April 2016, these accounts offer 8.6% interest PA. It is calculated and compounded annually. The minimum you can deposit in a financial year (FY) is Rs. 1000 and the maximum is Rs. 1,50,000.  However, if you fail to deposit Rs. 1000 in a FY, you have to pay a fine of Rs. 50 to revive your account. A maximum of two accounts can be opened for two different girl children, up to 10 years from date of birth. The account can be closed after 21 years, or 18 years, provided the girl is married.

Rajiv Gandhi Equity Savings Scheme (RGESS)

If you have an annual income of less than Rs. 10 lakh and have not invested in equities until November 23, 2012, you can invest in RGESS. Although there is no fixed amount that you have to invest, a maximum amount of Rs. 50,000 is eligible for IT deduction. To invest in RGESS, you have to open a Demat account and sign a declaration (Form A of Depository Participant). This scheme has a lock-in period of 3 years which is divided into fixed and flexible periods.


The first year from the date of investment is the fixed period and as the term indicates, during this period, you cannot sell any securities or pledge them against loans. The next two years will be the flexible period. In these two years, you can buy and sell suitable securities. However, you must maintain the value of your initial investment for a cumulative period of 270 days each year. Ultimately, the value of your investment portfolio should equal or exceed the amount you claim as investments for tax deductions as per Section 80 CCG. 


For example, you invested Rs. 50,000 on 23rd November 2012. There can be two scenarios:


Invest lump sum
 

23 November, 2012

First year / Fixed lock-in period begins

22 November, 2013

Fixed lock-in period ends

23 November, 2013

First year of flexible lock-in-period begins

22 November 2104

First year of flexible lock-in-period ends

23 November, 2014

Second year lock-in-period begins

22 November, 2015

Second year lock-in-period ends

23 November, 2015

Converted into an ordinary Demat account

In this case, the FY for compliance, as per the 270 days clause, will be 2014-15.


Invest in parts
 

23 November, 2012

Rs. 10,000

15 January, 2013

Rs. 30,000

11 March 2013

Rs. 10,000

12 March, 2104

Fixed lock-in ends

*The first part of this investment is for 1 year 3 months 16 days

10 March, 2015

First year of flexible lock-in period ends 

10 March, 2016

Second year of flexible lock-in period ends

Upon expiry of the period of holding, the Demat account will be converted automatically into an ordinary Demat account.


According to Indian IT regulations, deduction amounts to 50% of the amount invested, the amount not exceeding Rs. 25,000. So, if you are in the lowest tax slab bracket of 10%, your tax benefit will be Rs. 2500. Likewise, if you are in the 20% tax bracket, you will get a tax benefit for Rs. 5000.

National Pension Scheme (NPS)

The Indian government established the Pension Fund Regulatory and Development Authority (PFRDA) to improve and regulate the pension sector. The NPS was launched after PFRDA to provide citizens with a mode of post-retirement income, and instil the habit of saving for retirement. The various schemes offered are as follows.

Scheme

About the scheme

Procedure to subscribe

Contribution towards NPS

Withdrawal

Central Government Employees

New employees of Central Government service (except Armed Forces) and Central Autonomous Bodies joining Government service on or after 1st January 2004, can avail of this scheme. Any government employee, who is not mandatorily covered under NPS, can subscribe to it under All Citizen Model through a Point of Presence - Service Provider (POP-SP).

Subscription for NPS (Tier-I) can be initiated in the following process:

Submit form S1 to the Drawing and Disbursing Officer (DDO) or equivalent offices. Thereafter, the DDO shall provide and certify the employment details.

Subsequently, the DDO shall forward the form to the respective Pay and Accounts Office (PAO) / District Treasury officer (DTO).

The form should be submitted to Central Recordkeeping Agency (CRA) for registration.

For Central Government employees, contribution through nodal office to National Pension System (NPS) is mandatory. Every month 10% of salary (basic + DA) and equivalent contribution from the government will be invested in NPS.

As per the guidelines of PFRDA or Ministry of Finance (MoF), subscribers can withdraw from NPS on retirement, resignation or death. On retirement, a subscriber would be required to invest minimum 40% of his / her accumulated savings to purchase a life annuity from PFRDA empanelled and Insurance Regulatory and Development Authority (IRDA) approved Annuity Service Providers (ASPs). Around 80% of amount has to be annuitized and remaining can be withdrawn on resignation. In case of demise of the subscriber, entire amount will be handed over to the nominee.

 

State Government Employees

NPS is applicable to all the employees of State Governments, State Autonomous Bodies joining services after the date of notification by the respective State Governments. Any government employee, who is not mandatorily covered under NPS, can subscribe to it under All Citizen Model through a POP-SP.

 

Same.

Same.

Same.

Corporate

A Corporate would have the flexibility to decide investment choice either at subscriber level or at the corporate level centrally for all its underlying subscribers.

Corporate can extend NPS to their employees by tying up with any of the approved PoPs through MOUs.

The Corporate can register for NPS by submitting the CHO-I form along with the details of corporate branch offices to the designated PoP.

 

 

A Corporate would have flexibility to provide investment scheme preference, either at subscriber or corporate level, centrally for all its underlying subscribers.

Same.

 

Individual

All citizens of India, aged between 18 and 60 years, as on the date of submission of application, to Point of Presence (POP) / Point of Presence-Service Provider (POP-SP), can join NPS.

Any individual can register as a subscriber in NPS by submitting duly filled UOS S1 form to open a Permanent Retirement Account (PRA) (Tier I and/or Tier II) in NPS with other supporting KYC documents to POP-SP.

For a Tier II account, an individual with an active Tier I account needs to approach the associated POP-SP and submit a copy of the PRAN Card along with UOS-S10 form (Tier II activation form).

To contribute in Tier I and Tier II account, a subscriber is required to make his / her first contribution at the time of applying for registration (minimum contribution Rs. 500 for Tier I and Rs. 1000 for Tier II) at any POP-SP with NCIS (NPS Contribution Instruction Slip).

 

For Tier II, minimum contribution at the time of account opening has to be Rs.1000 and the maximum amount per contribution has to be Rs. 250.

 

In Tier I account, a subscriber can withdraw from NPS on his/ her retirement, resignation or death. The details are same as above.

 

To withdraw from Tier II account, the subscriber needs to submit UOS-S12 to the associated POP-SP. If the request is entered and authorized in CRA system by the POP/POPSP before 1.30 PM, then it goes for same day's processing, or else it goes for the next business day.

 

Unorganized Sector Workers - Swavalamban Yojana

A citizen of India, aged between 18 and 60 years as on the date of submission of his / her application, who belongs to the unorganized sector or is not in a regular employment of the Central or a state government, or an autonomous body/ public sector undertaking of the Central or state government, can open NPS -Swavalamban account.

 

The subscriber should not be covered under social security scheme like:

  • Employees' Provident Fund and miscellaneous Provisions Act, 1952
  • The Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948
  • The Seamen's Provident Fund Act, 1966
  • The Assam Tea Plantations Provident Fund and Pension Fund Scheme Act, 1955
  • The Jammu and Kashmir Employees' Provident Fund Act, 1961

People can register for NPS Lite by contacting the Aggregator and submit NPS Lite subscriber registration form with KYC documents like identity proof and address proof.

Subscribers will receive a Permanent Retirement Account Number (PRAN) card through an aggregator.

 

Minimum contribution at the time of registration is Rs. 100. A minimum contribution of Rs.1000 per year is recommended to avail Swavalamban. Since Swavalamban benefit is available for contribution up to Rs.12,000, you will get a better pension for a higher contribution.

The normal exit from is at the age of 60. However, early withdrawal is also permitted with certain conditions.

 

On withdrawal from NPS Lite account at 60, the subscriber would be required to invest at least 40% of accumulated savings (pension wealth) to purchase annuity. At the time of exit, the effort is to give a monthly pension of Rs.1000. On withdrawal before 60, the subscriber would be required to invest a minimum of 80% of accumulated savings to purchase annuity. He can withdraw rest of the 20% amount.

 

In case the subscriber passes away, the entire amount will be transferred to the nominee/legal heirs upon providing proper proof such as Death Certificate, Identity proof of the nominee, etc.

 

 

So, now that you have knowledge about all the various government savings schemes, start planning your finances. Make sure that you allocate your savings well, utilize tax benefits and make your money multiply to save up enough and enjoy your life, always.