Government relaxes rules for PPF, SCSS and time deposit accounts; all you need to know

The rules for investing in small savings schemes including the Public Provident Fund (PPF), Senior Citizen’s Savings Scheme (SCSS), and Time Deposit Scheme have changed. The regulations have now eased, thus, allowing more inclined investors to benefit from putting their money in them. 

The following list provides a summary of the nine categories of small savings schemes provided by the Indian government at present.

Recurring Deposit (RD)

Objective: To create a systematic deposit over a predetermined period.

Interest Rate: Up to 7.5% per annum.

Term: 5, 10, or 15 years.

Investment Amount: Minimum of Rs. 100 per month.

Tax Implications: Taxable interest income.

Public Provident Fund (PPF)

Objective: Accumulating long-term savings for retirement or other objectives.

Interest Rate: Currently at 7.1% per annum.

Term: 15 years.

Investment Amount: Minimum of ₹500 per annum.

Tax Implications: Interest income deferred until maturity.

Sukanya Samriddhi Yojana (SSY)

Objective: Saving for a girl child’s higher education or marriage.

Interest Rate: Presently at 8% per annum.

Term: Up to 21 years.

Investment Amount: Minimum of ₹250 per month.

Tax Implications: Tax-exempt interest income.

Mahila Samman Saving Certificate

Objective: Encouraging savings among women.

Interest Rate: Currently at 7.5% per annum.

Term: Up to 2 years.

Investment Amount: Minimum of Rs. 1000 per annum.

Tax Implications: Tax-exempt interest income.

Kisan Vikas Patra (KVP)

Objective: Mobilizing savings from rural households.

Interest Rate: Currently at 7.5% per annum.

Term: 113 months

Investment Amount: Fixed amount (based on tenure).

Tax Implications: Capital gains on maturity are tax-exempt.

National Savings Certificate (NSC)

Objective: Providing fixed-income investment options.

Interest Rate: Currently at 7.7% per annum.

Term: 5 years

Investment Amount: Fixed amount (based on tenure).

Tax Implications: Taxable interest income.

Senior Citizen Savings Scheme (SCSS)

Objective: Offering a secure investment option for senior citizens.

Interest Rate: Currently at 8.2% per annum.

Term: Up to 5 years.

Investment Amount: Up to ₹30 lakhs.

Tax Implications: Tax-exempt interest income.

How have the rules changed for these savings schemes?

Small savings schemes are investment alternatives regulated by the Department of Economic Affairs (DEA) within the finance ministry. The Central Government has recently implemented new regulations aimed at amending existing provisions, with the goal of fostering greater inclusivity in these schemes.

Senior Citizen’s Savings Scheme

The government has prolonged the duration for initiating an SCSS account from one month to three months. This extension aims to enhance flexibility for senior citizens, enabling them to open an account at their convenience. The objective is to offer a more appealing and adaptable investment choice for the senior demographic.

The updated regulations took effect following the gazette notification issued on November 9, 2023. As outlined in the notification, interest on deposits in an account established under the senior citizen’s savings scheme will be computed based on the applicable scheme rate on either the maturity date or the extended maturity date.

Public Provident Fund (PPF) Scheme

The Public Provident Fund (Amendment) Scheme, 2023, announced on November 9, 2023, brings forth various alterations to the PPF scheme, notably revising the regulations pertaining to premature closure of accounts.

These criteria encompass the requirement for funds to address life-threatening illnesses affecting the account holder or their immediate family, covering higher education expenses, or arising from changes in the residency status of the account holder. According to the report, substantiating documents such as medical reports, evidence of educational admission, and pertinent immigration papers must be furnished to substantiate these assertions.

Nonetheless, the regulation stipulating that premature closure of a PPF account will result in a penalty, manifested as a one per cent reduction in the interest rate for the duration the account is maintained, remains unaltered.

National Savings Time Deposit Scheme

The interest rate for premature withdrawals from five-year Time Deposit accounts has undergone a modification. Previously, closing a five-year account after four years would result in interest calculation based on the rate applicable to three-year Time Deposit accounts. However, with the updated regulations, the interest will now be computed at the rate applicable to the Post Office Savings Account.

This alteration proves advantageous for depositors since the interest rate for the Post Office Savings Account surpasses that of three-year Time Deposit accounts. As of November 2023, the interest rate for the Post Office Savings Account stands at four per cent, whereas the interest rate for three-year Time Deposit accounts is 6.5 per cent.