Post office saving schemes — How to save tax

Post office saving scheme

Post office saving schemes incorporate several reliable investment tools, ensuring investors a secure and guaranteed return. These schemes are open for investment to all Indian citizens and are operated by post offices across the country. Since the Government of India backs these schemes, they are predominantly low-risk. Some schemes are also eligible for tax exemption under section 80C of the Income Tax Act 1961. 

Post Office Tax Saving Schemes under 80C

If you plan on investing in a scheme that does not involve too much risk and saves tax, then a post office tax saving scheme is the ideal option. Let’s take a detailed look at some of these schemes:

1. 5-Year Post Office Time Deposit (POTD)

As the name suggests, the tenure of this time deposit is 5 years. You can agree to make a fixed monthly payment, starting from Rs 100, and earn interest at 5.8% annually. The interest is compounded annually, and you can reinvest the interest in the scheme to enjoy higher returns. Once you have completed 12 instalments without default, you can get up to a 50% loan against the balance available in your account.

2. Senior Citizen Savings Scheme (SCSS)

This is an exclusive scheme for senior citizens, where individuals over 60 can invest for 5 years. Additionally, you can invest in this post office tax saving scheme even if you are between 55 and 60 years old and have taken VRS or retired. You can open an individual or joint account, with deposits ranging from Rs. 1000 to Rs. 15 lakh. The interest is payable quarterly at 7.40% per annum. However, if the amount of interest exceeds Rs. 40,000, TDS is applicable. After maturity, you can extend the tenure for three more years.

The investments made under the scheme are eligible for deduction. However, if the amount of interest earned is more than Rs. 10,000, TDS is applicable.

3. Sukanya Samriddhi Account (SSA)

The scheme is operated under the Sukanya Samriddhi Yojana. A legal guardian can open this account for their girl child, who should be below the age of 10 years. However, only one account is permitted for a child, while a maximum of two accounts can be opened in a family. Regardless of the girls’ age at the time of opening the account, the tenure of this scheme is 21 years. 

The deposits should be made for 15 years, failing which the account will be discontinued. However, the account can be revived by paying a penalty of Rs. 50 per year and the minimum deposit amount for the year. The minimum deposit amount is Rs. 250 yearly, while the maximum deposit amount is Rs. 1.5 lakh. The scheme carries an interest rate of 7.6% per annum.

The scheme allows partial withdrawal if the girl child has reached the age of 18 years. However, premature withdrawals are allowed in case of medical emergencies, provided investments are made for 5 years.

The investments made under the scheme are eligible for exemption and up to Rs.1.50 Lakh per year. Moreover, the interest earned on maturity is also tax-free. 

4. Public Provident Fund (PPF)

It is a long-term post office tax-saving scheme, offering guaranteed returns with 7.1% interest per annum. It is an ideal scheme for salaried employees planning a financially secured retirement. You can open only one PPF account in your name, and there’s no provision for a joint account. However, the account has a nomination facility, and you can transfer your account from one post office to another. You can make partial withdrawals after seven years and avail of a loan after four years. 

The minimum deposit you must make is Rs. 500, failing which the account will be discontinued. The maximum yearly deposit you can make is Rs. 1.5 lakh. Your investments towards PPF are eligible for tax exemption under section 80C of the Income Tax Act. Moreover, the interest you earn on PPF is also exempt from tax. 

5. National Savings Certificate (NSC)

This post office tax saving scheme comes with a tenure of 5 years and 8% interest. The interest is compounded half-yearly but payable at maturity only. You must make a minimum deposit of Rs. 1000, and there’s no maximum limit on the investment amount. You can transfer the certificate to another individual; however, you must do so during the tenure of the scheme. The investments you make under the scheme are exempt from tax under section 80C of the Income Tax Act. 

Apart from the tax-saving benefits, post office tax-saving schemes offer a range of other benefits. These include a straightforward investment process, access to a diverse group of investors, long-term investment, risk-free investment schemes, guaranteed returns, and more.

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