PPF, SSY, NSC, KVP, MIS or Time deposit: Which post office scheme saves the most tax?

There are multiple post office schemes that ensure guaranteed returns as they are backed by the government, but when it comes to savings the returns differ significantly, depending on interest rate, time period and taxes.

Let's explore three stages of investment journey — from tax deduction on contribution and taxation on interest during growth to taxation on withdrawal at maturity.

Interest Rate, Lock-in Period and Investment Limit

1. Public Provident Fund (PPF): PPF, alternatively known as a tax-efficient saving, currently offers 7.1% annual interest and comes with 15-year lock in period. The annual lower investment limit for this scheme, considered the gold standard for tax-free long-term savings, is ₹500 while the upper limit is ₹1.5 lakh.

Investors can avail a deduction up to ₹1.5 lakh under Section 80C in the old tax regime. It also brings down taxable income by up to ₹1.5 lakh. Moreover, interest earned on this investment is tax-free and at maturity, one can withdraw the entire amount without paying a single rupee as income tax.

2. Sukanya Samriddhi Yojana (SSY): This scheme offers highest interest rate of 8.2%. It is a complete package offering tax benefits alongside security of daughter's future. One can avail tax exemption of up to ₹1.5 lakh under Section 80C in old regime at the contribution stage by investing in this scheme. Featuring lock in period of 21 years, SSY is completely tax-free during both the accumulation stage and at maturity. One can invest anywhere invest between ₹250 and ₹1.5 lakh annually, requiring contributions only for 15 years but compounding continues till maturity. Once the girl turns 18, the investor can withdraw up to 50% of the amount primarily for her higher education.

3. National Savings Certificate (NSC): Offering 7.7% interest rate with a 5-year lock-in, this scheme comes with unique tax advantages as the interest is treated as reinvested during the first 4 years. The interest counts as a fresh 80C deduction each year in old tax regime and comes with minimum investment amount of ₹1,000 without any upper limit. In the final year it becomes taxable as “Income from Other Sources" but is not liable for TDS deducted at maturity.

4. Post office time deposit (5-Year): This scheme comes with annual interest taxation and offers no additional tax exemption at maturity. Under old regime, only the 5-year variant is eligible for Section 80C deduction, the 1, 2, or 3-year deposits don't qualify for this benefit. TDS can apply if total interest crosses the prescribed limit.

5. Post office monthly income scheme (POMIS): Despite being popular for its monthly payouts, POMIS offers zero tax benefits. Tax deduction cannot be claimed under Section 80C for money invested in POMIS as it is categorised as Income from Other Sources.

6. Senior citizens' savings scheme (SCSS): This scheme offering quarterly interest and qualifies for Section 80C benefit but comes with tax implications. Senior citizens can claim up to Rs. 1.50 lakh tax deduction under this scheme but the interest earned on it is fully taxable in the year it accrues. Investment limit is capped at ₹30 lakh in this scheme.

7. Kisan Vikas Patra (KVP): This savings certificate scheme offers guaranteed returns on investment as investors can double their money but cannot claim tax relief. Offering 7.5% interest with lower investment limit of ₹1,000, KVP investments are ineligible for Section 80C tax deduction. With no maximum limit on investment, the interest that accrues annually is taxable even though it's paid only at maturity. Moreover, there's no exemption upon withdrawal at maturity.

Tax Benefits and Taxation

Since every individual's need, tax situation and financial goals differ, so the best small savings scheme differs for person to person.