Tax Saving schemes

Saving Schemes List: Types, Interest Rates & Tenures

Savings Schemes are investment options for Indian citizens launched by the government as well as other

public sector financial institutions. These saving schemes were introduced as an incentive to cultivate healthy

saving and investing habits in India. This is also a way to increase the inflow of money into the Indian

economy. In earlier times Indians used to keep their money with themselves and this caused poor circulation as

well as stagnation of wealth. By means of saving schemes, which are backed by the government, Indian

citizens can allow their wealth to appreciate at higher interest rates and reap benefits such as tax exemption
that certain savings schemes offer.

Savings schemes cater to a wide demographic and encourage individuals to invest for various milestones of

life such as retirement, children’s higher education, their marriage etc. They are ideal for long term wealth

creation as they come with a certain lock-in period and offer good returns. Since they are not impacted by

market volatility, they are safer investment options, ideal for the conservative investor. Furthermore, the

interest rates on various saving schemes are revised on a quarterly or half yearly basis, keeping up with the

rising costs of living and inflation. Mentioned below are the various savings schemes available for Indian

citizens and their salient features.

Tax Saving Fixed Deposits

Tax Saving fixed deposits are suitable for investors looking for lower risk and a fixed and guaranteed return on

a long- term basis. Deposit made is allowed as a deduction under Section 80C up to Rs 1.5 lakh. If you invest

say Rs 50000, and your total income is taxed in the 20% tax slab rate, a deduction of Rs 10000 (Rs 50000 *

20%) will be allowed.

1. Lock-in period is 5 years

2. Minimum Investment required is Rs 100

3. No Limit on the maximum investment

 4. Interest rate: Differs from bank to bank. Currently around 6.50% – 7.25%.

5. Deduction on Principal is allowed

6. Interest taxable at normal tax rates

Top 5 interest rates on Tax-saving Bank FDs

Bank Name Interest Rate Interest Rate for Senior Citizens

Laxmi Vilas Bank 7.85% 8.45%

Bandhan Bank 7.65% 8.40%

AU Small Finance 7.77% 8.27%

Bank

DCB Bank 7.75% 8.25%

IDFC First Bank 7.75% 8.25%

Unit Linked Insurance Plan (ULIP)

Unit Linked Insurance Plan (ULIP) is a combination of investment and insurance. In this plan insurance

company puts a portion of the amount for life insurance and rest of the portion in equity-oriented a mutual fund

or debt- oriented mutual fund. This division of amount to be invested is based on the long-term goals of an

investor like retirement planning, children’s education, marriage, etc.

1. Investment is allowed as a deduction under section 80C up to Rs 1.5 lakh

2. Interest is not taxable

3. Interest Rate keeps fluctuating depending ULIP Fund Performance

4. Minimum Investment Amount differs for insurance companies

5. No limit on Maximum Investment

Equity Linked Savings Scheme (ELSS)

Equity Linked Savings Scheme (ELSS) is a type of mutual fund, with the shortest lock-in period of just 3

years, investing at least 80% of assets in equity (stocks) offering a higher compounding potential in the long

term among other tax-saving schemes

∙ Minimum Investment Amount differs for fund houses

∙ No limit on Maximum Investment

∙ Deduction on Principal allowed under section 80C up to Rs 1.5 lakh

∙ Interest is taxable at 10% (LTCG)

∙ Dividend earned is taxable at 10% as dividend distribution tax

Sukanya Samriddhi Yojana

The Sukanya Samriddhi Yojana is a government savings scheme created with the intention to benefit the girl a

child who is 10 years of age or younger. A parent or legal guardian can open maximum of 2 accounts for 2 girl

child. The account matures after 21 years of opening the account or in the event of the marriage of the girl

child after she gains the age of 18 years. A premature withdraw up to 50% of investment is allowed after the

child gains the age of 18 years even if she is not getting married.

 Interest rate- 8.5%

 Duration of investment- 21 years

 Minimum Investment: Rs 1,000 per annum

 Maximum Investment: Rs 1.5 lakh per annum

 Tax Deduction on Principal allowed under section 80C up to Rs 1.5 lakh

 Interest received is not taxable

National Pension Scheme (NPS)

The National Pension System is a savings scheme which aims at providing monthly income after the

retirement of the investor. Here employees need to invest in NPS while they are employed. The entire

accumulated throughout the duration of the scheme is broken down through an annuity plan, and then paid out

to the investor every month post retirement.

This scheme is secure and reliable source of monthly income for retired employees of state and central

government organizations, employees of MNCs, and citizens who are employed in the unorganized sectors.

 For employees of the central or state government organizations, 10% of monthly income is deducted

and an equal amount is contributed by the government.

  For employees of MNCs or those from the unorganized sectors, NPS is just like other long-term

saving schemes and it benefits them after the completion of the pre-determined tenure, according to

the scheme.

Pradhan Mantri Vaya Vandhana Yojana (PMVVY)

Pradhan Mantri Vaya Vandana Yojana (PMVVY) is a pension plan run by Life Insurance Corporation LIC for

senior citizens aged minimum of 60 years. An assured return of 8% per annum is provided monthly (equivalent

to 8.3% per annum) for 10 years. However, the investor can choose for monthly/quarterly/ half-yearly or

yearly payment of his pension.

 Tenure is 10 years

 Minimum Investment amount- Rs 1,000

 Maximum limit on investment- Rs 15 lakh

 Tax deduction on Principal is allowed

 Interest earned is tax-exempt

Senior Citizen Saving Scheme (SCSS)

Senior Citizen Saving Scheme (SCSS) is aimed to provide a regular income for senior citizens aged above 60

years available at a certified bank and post offices across India.

This scheme is applicable to 3 categories of investors

1. Senior citizens who are of age 60 years or above

2. Retirees being in the age bracket of 55- 60 years opted for Voluntary Retirement Scheme (VRS) or

Superannuation and invested the retirement benefits in SCSS received within a month

3. Retired defense personnel aged 50 years or above

Few other pointers are listed below:

 1. Interest Rate is 8.7%

2. Tenure being 5 years

3. Minimum Investment required is Rs 1000

4. Maximum Investment allowed is Rs 15 lakh

5. The principal

amount invested is allowed as a tax deduction

6. Interest earned is also tax-exempt

Government Savings Scheme

Government Savings Scheme is popular among the investors as these investment plans are reliable, low risk

and secure. Let’s read about these schemes in detail.

Public Provident Fund :

Public provident fund or PPF is an investment option that has been extremely popular with Indians across

generations. The reasons for its popularity are many. The major reason why PPF is considered as a preferred

choice can be attributed to it being a safe investment option.

The interest rate is an attractive 8 % PA and the invested amount can be claimed under Section 80C to lower

your tax liability. Not only this, the interest earned on invested amount is also exempt from tax.

The lock-in period is 15 Years, after which you can choose to withdraw your corpus. You can keep the scheme

live by extending it by 5 years thereafter as per your requirements. The minimum amount that needs to be

deposited is just Rs 500 and the maximum amount is capped at Rs 1.5 Lakh annually. You can either deposit

this amount in a lump sum mode or choose to make deposits in 12 installments. Please note that an amount

more than Rs 1.5 Lakh will not be eligible to earn interest as well as can’t be used to claim tax exemption.
Any Indian citizen can avail benefits of this scheme, however, HUFs and NRIs are not eligible to open a PPF

account. You can hold only one PPF account per person and joint accounts are not allowed. At the time of

account opening however, you can assign a nominee.

A very interesting fact about PPF money saving scheme that many investors are unaware of is that you can

take a loan against the amount you invested in PPF. This loan can be availed between the 3rd and 5th Year .

The maximum loan amount you can avail is 25% of the 2nd year immediately followed by the year in which

application for loan has given. You can also avail a second loan in the sixth year, provided the first loan has

been paid in full.

National Savings Certificate

National Savings Certificate or NSC is a great investment option that comes with the advantage of tax saving.

NSC can be obtained from any post office by Indian citizens. This investment option is a preferred choice of

individuals who are looking for safer investment avenues as it is backed by the Government of India,

consequently carrying a low risk.

Currently NSC VIII with a tenure of 5 years is available for subscription. The interest rates for NSC range

between 7-8% PA and is fixed by the Ministry of Finance every financial year. For instance, the NSC interest

rate for FY 2019-20 is at 8% compounded annually.

While the minimum investment amount is Rs 100, unlike PPF there is no limit to the maximum amount that

can be deposited . However, only Rs 1.5 Lakh Rs qualify for a tax exemption under Section 80 C annually.

Another important point to note is that NSC interest is not tax exempt. However, the interest amount

accumulates in the account and is not paid to the depositor. So technically, the interest earned each year can be

considered as a reinvested amount, and hence is eligible as a fresh deduction under Section 80 C, thereby

making it tax free.

Post Office Savings Account

Post office savings account can be considered as a regular savings account offering a slightly better rate of

return . It is safe as well as offers the flexibility of partial and complete withdrawal of invested amount at short

notice for financial emergencies. Post office savings scheme account boasts of guaranteed returns and is

suitable for investors who have a low risk appetite, and senior citizens seeking an assured source of income

source with minimal risk exposure. The interest rate offered by this scheme is 4 % applicable for both joint and

single account holders. Interest amount upto Rs 10,000 is tax exempt.

Post Office Time Deposit

Post office time deposit scheme is one of best saving schemes run by the Indian post office. This scheme is

popular mostly among the rural population of India where better known investment products haven’t reached

yet. As the name suggests the time deposit scheme can be of 1 , 2, ,3 or 5 years in tenure. The scheme is suited

for investors seeking assured returns with minimal risk. . It is also transferable from one post office to another.

The interest rates are revised periodically, periodically and for FY 2019-20 it stands at 7% for the first three

years and 7.8% thereafter. A depositor can open multiple time deposits, there is no cap. As soon as the tenure

of a time deposit ends, if the money is not withdrawn it gets renewed for the original amount at whatever

interest rate is applicable on maturity date. Please note that an investor can claim tax benefit under Section 80

C for investment in 5 year post office time deposit.

Post Office Recurring Deposit

One of the most popular schemes amongst other post office saving schemes is the post office recurring deposit

( post office RD). This scheme is best for individuals who have small investible amounts ; the scheme can be

started with Rs 10 per month and subsequent amounts in multiples of Rs 5. There is no maximum amount that

can be invested.

The scheme commands an interest rate of 7.3% annually. The scheme also offers high flexibility, the

depositors can partially withdraw upto 50% of the total balance after one year. You can also keep extending

the amount by 5 years at the end of investment tenure. RD is transferable between post offices, can be opened
as a joint account as well as allows flexibility of opening multiple accounts. Recurring deposits are a great way

to cultivate regular investing and saving habits amongst small investors who want to build a corpus over time

with minimum risk to capital.

Post Office Monthly Income Scheme ( POMIS)

As the name suggests Post Office Monthly Income scheme offers fixed income in the form of interest based on

the lump sum deposit made by the investor. Needless to say this scheme is ideal for investors with low risk

appetite looking for a regular assured sum. While this scheme is eligle to be invested in by resident individuals,

it can be used by minors as well. Infact, minors above the age of 10 can even operate his account. The
depositor can open multiple accounts of this monthly saving scheme however, the net amount in all schemes

combined shouldn’t exceed Rs 4.5 Lakh.

Offering liquidity benefits, investors can withdraw the deposited corpus one year from first deposit. However,

please be aware that a withdrawal between 1 and 3 years attracts 1 % penalty and a withdrawal post 3 years

attracts 1 % penalty respectively. One major downside is that unlike other saving schemes that offer dual

benefits of wealth creation as well as tax saving, POMIS does not come with any tax benefits. Interest received

monthly will be considered as part of the taxable income ; the monthly interest amount received as well the

deposit amount are free from TDS.

Kisan Vikas Patra

Kisan Vikas Patra is a small savings certificate scheme launched by India Post In 1988. Like all other

government schemes, KVP was also launched as a long term wealth creation avenue for farmers . Over the

years it has emerged as a safe wealth creation option that Indian citizens with low risk appetites can opt for.

The scheme spans for 118 months or 9 years and 10 months. What’s special about the scheme is that if you

deposit a sum today at the end of the tenure your amount will get doubled. The minimum investment amount

required is Rs 1000 and there is no cap to the maximum limit. Also it is mandatory to produce a PAN card for

deposits more than Rs 50,000 for safety reasons. For deposits exceeding Rs 10 Lakh, the depositor needs to

furnish other income proofs such as income tax return, salary slips, bank statement etc. Furthermore,

depositors are mandated to furnish Aadhaar number as an identity proof as well.

The table below summarises all government saving schemes with their salient features.

Scheme Plan Eligible Minimum Maximum Interest Rate Tax Deduction

Investment Investment Earned
Required Allowed

Public Individual Rs 500 per Rs 1.5 lakh 8% p.a. (Annually Allowed up to

Provident fund year per year Compounded) Rs 1.5 lakh
(PPF)

National Individual Rs 100 No Limit 8.0 % p.a. Deduction on

Savings (Compounded deposit made
Certificate Annually) up to Rs 1.5
(NSC) lakh

Post Office Resident Rs 20 No Limit 4% p.a. Tax free

Savings Individual interest
Account

Deduction up to
Post Office Individual Rs 200 No Limit First 3 years- 7% 5 years on
Time Deposit deposit

Fourth year-

7.8%

Post Office Individual Rs 10 No Limit 7.3% Interest

Recurring taxable, no
Deposit deduction on
deposit
 Post Office Individual Rs 1500 Single 7.3 % per annum Interest
Monthly account- Rs payable monthly taxable, no
Income 4.5 lakh deduction on
Scheme deposit
(POMIS) Joint account-

Rs 9 lakh

Kisan Vikas Individual Rs 1000 No Limit 7.7% p.a. Interest Tax,

Patra (KVP) (Compounded amount
Annually) received on
maturity
exempt

Conclusion

To sum up, there are a variety of saving schemes spread across risk profiles that cater to a wide variety of

investors. All of them are government supported hence promise capital protection as well as appreciation at

attractive rates. Keep in mind the interest rates, tax treatment as well as lock-in period of different schemes to

select the most suitable option. For optimal growth of your wealth you can invest across a combination of best

savings schemes as well.