The 80C advantage in small savings schemes is not just limited to the popular Public Provident Fund. Two other products also get this benefit—National Savings Certificate (NSC) and Senior Citizens’ Savings Scheme (SCSS).
It offers a rate of 8% per annum, compounded half-yearly. This means Rs1 lakh invested becomes around Rs1.6 lakh in six years. While the initial contribution qualifies for tax deduction under section 80C, even the interest that gets generated every six months qualifies for deduction under section 80C up to Rs1 lakh since it gets reinvested. However, in the sixth year the interest that is generated gets added to your income and is taxed since it can’t be reinvested. However if you have exhausted your section 80C limit of Rs1 lakh then the interest that accrues under NSC is taxable.
The minimum amount of investment in the NSC is Rs100 and there is no upper limit. You can also invest in an NSC on the behalf of a minor.
An excellent income scheme for the retired, it allows a senior citizen (at least 65 years old) having a lump sum to invest get a reasonably good interest rate. If you are 60 years old (or took voluntary retirement at 55), you can invest up to Rs15 lakh for five years in this scheme. You can either operate individually or maintain a joint account with your spouse.
SCSS gives you an assured return of 9% per annum, which is payable quarterly. A kitty of Rs15 lakh would give a quarterly income of about Rs33,750 for five years.
This is the best option in the debt space for a senior citizen. The scheme can also be extended by three years.
However, the income that you get is taxable. Since for senior citizens, the basic exemption limit if fairly relaxed, tax on its income is not really a worry. In the example mentioned above, the annual income will come to about Rs1.35 lakh. The basic exemption for a senior citizen this year is Rs2.4 lakh. This means the entire annual income from SCSS will escape the tax net.