Articles

Many post office savings schemes offer income tax benefits to investors. Post office offers nine savings schemes and some of them qualify for income tax benefits. The schemes, that offer income tax benefit are Post Office Time Deposit Account (TD), Senior Citizen Savings Scheme (SCSS), Public Provident Fund (PPF), National Savings Certificates (NSC) and Sukanya Samriddhi accounts. Using these post office savings schemes, an investor can claim a deduction up to Rs 1.5 lakh in a financial year from taxable income under Section 80C of the Income Tax Act, 1961.

Here are some of the post office saving schemes that offer tax benefits:

1. Post Office Time Deposit Account (TD): Investment in time deposits of one-year, two-year and three-year maturity periods fetches an interest of 7%. The five-year post office deposit scheme is similar to tax-saving five-year bank deposits, which have a lock-in period of five years. The sum deposited in these schemes qualifies for tax deduction up to Rs 1.5 lakh per financial year. Currently, the five-year post office deposit scheme fetches 7.8%.

2. 15-Year Public Provident Fund Account (PPF): PPF offers an interest rate of 8% per annum, which is compounded yearly. The scheme has an EEE or ‘exempt, exempt, exempt’ status, which means that it provides subscribers with deduction benefit up to Rs 1.5 lakh under Section 80C on deposits. The interest earned is also tax-free.The minimum amount that must be deposited in a PPF account in a financial year is Rs 500 and the maximum allowed is Rs 1.5 lakh.

3. Senior Citizen Savings Scheme (SCSS): An individual of the age of 60 years or more is eligible for the scheme. The maturity period is five years and can be extended by three years. An individual cannot invest more than Rs 15 lakh under this scheme. The scheme offers an interest rate of 8.7% per annum, payable from the date of deposit of March 31/ September 30/December 31 in the first instance and thereafter, interest shall be payable on March 31, June 30, September 30 and December 31. There is tax deducted at source (TDS) on interest, if the amount is more than Rs 10,000 per annum. Investment of up to Rs 1.5 lakh in the SCSS qualifies for tax benefit under Section 80C of the Income Tax Act but the interest earned is taxable.

4. National Savings Certificate (NSC): The interest rate on the NSC has gone up to 8%, from 7.6%. In other words, Rs 100 invested in the NSC grows to Rs 146.93 after five years, payable on maturity. There is no upper limit for investment in the NSC and the minimum investment required is Rs 100. Deposits of up to Rs 1.50 lakh in the NSC in a financial year qualifies for tax deduction under Section 80C. Interest accrued yearly in NSCs is deemed to be reinvested on behalf of the investor and qualifies for deduction under Section 80C within the total limit of Rs 1.5 lakh. But as the final year’s, or the fifth year’s, interest is not reinvested, it cannot be claimed as a deduction from taxable income under Section 80C. Therefore, the last year’s interest income is added to the certificate-holder’s income and taxed accordingly.

5. Sukanya Samriddhi Scheme: The Sukanya Samriddhi Scheme is a small deposit scheme for the girl child. It currently offers 8.5% interest per annum and provides income tax benefits. Even the returns are tax free under the scheme. The maximum amount that can be deposited in a year is Rs 1.5 lakh. The Sukanya Samriddhi Scheme also enjoys EEE status, making it one of the most tax efficient schemes.