National Savings Scheme (NSS)

Typically, national savings schemes are savings instruments launched or backed by the government and operated via authorised financial institutions and other entities. The primary objective of such programmes is to mobilise savings and help individuals build a substantial corpus eventually. Further, the rates of return under such schemes are revised frequently while centralised backup makes them safe investment options.

Mostly the national savings schemes can be categorised based on the beneficiary categories they are directed to. Each of such schemes comes with pre-fixed eligibility criteria and offers an array of features and benefits. Hence, before applying for any of the NSS schemes, individuals must find out more about their preferable scheme in detail.

Types of National Saving Scheme

Depending on the targeted beneficiaries, the schemes are divided into categories, namely – regular NSS schemes, savings plans for senior citizens and schemes for the girl child. Take a look.

For Regular Investors

This small savings plan is quite similar to the savings account held with banks. Through this savings scheme, individuals can generate a fixed monthly income, which accrues on their lump-sum investment over a tenure of 5 years.

Only resident Indians can invest in the scheme at their nearest post office with a minimum investment of Rs. 1000. The maximum limit of investment under the scheme is Rs. 9 Lakhs for a single account. Investors are further allowed to open a Post Office Monthly Income account jointly with 2 or 3 applicants, whereby the maximum limit on investment is Rs. 15 Lakhs. The rate of returns is pre-determined by the government and is calculated annually.

Under this national savings scheme, investors are required to deposit a predetermined amount of money each month for a term of 5 years, which can further be extended to 10 years. Moreover, there is no upper limit on this savings scheme which makes it an available option to park funds for significant return generation.

For instance, Mr Ashok invests Rs. 1000 into this scheme for nine months which accrues interest at the rate of 7.10%. On tenure completion, the maturity value of this national savings scheme would be Rs. 9,268.

  • Post Office Savings Account and Post Office Time Deposit Account

The Post Office Savings Account is quite similar to the regular savings account in banks; except that such an account can be opened at a post office. Parents and legal guardians can also open the said account on behalf of minors. When it comes to tax benefits, investors are allowed to claim tax deductions up to Rs. 1000 in a financial year. However, no such tax rebates are offered on the accrued interest.

On the other hand, the Post Office Time Deposit Account is similar to a fixed deposit and can be opened with a minimum deposit of Rs.200.

This small savings scheme not just helps to mobilise small savings but further helps to build a reliable corpus over the years. Resident Indians can open a PPF account at selected financial institutions or a post office with a minimum deposit of Rs. 500 each year. Typically, PPF account comes with a term of 15 years which can further be extended up to 5 years.

One cannot open more than one account under this national savings scheme. The rate of returns offered under this scheme is compounded annually and computed on the minimum available balance as of the 5th or last day of the month.

Further, individuals can avail up to 25% of loan against their deposit between the 3rd and 5th year of their account.

It is typically a scheme that can be availed via an issue of certificates from a post office and helps generate substantial returns throughout the tenure. The plan was launched to help small investors, especially farmers, to inculcate financial discipline. Any Indian citizen over the age of 18 years can benefit from this National Savings Scheme by investing in it either individually or jointly. Similarly, Trusts can also invest the same but not NRIs or HUF. Notably, individuals can invest in this savings scheme on behalf of minors as well.

It comes with a lock-in period of 30 months and allows premature withdrawal under certain circumstances. The Kisan Vikas Patra can further be used as collateral to avail secured loans from financial institutions.

It is a fixed income-generating investment scheme, whereby account can be opened at any post office both individually and jointly. This savings plan was launched to encourage small and mid-income groups to mobilise their savings through investments while encouraging tax saving.

Typically, the investment option does not have any maximum limit on investment and comes with two distinct maturity period – 5 and 10 years. Also, the NSC can be used as collateral to avail substantial loan from financial institutions. However, NRIs, HUFs and trusts are not allowed to invest in this savings scheme.

For Senior Citizens

  • Senior Citizens Saving Scheme (SCSS)

It is one of the most popular national savings schemes and is considered a viable option for ensuring financial independence post-retirement. Also, the fact that SCSS is among the highest income generating centralised schemes makes it a profitable investment option.

Any residing Indian over 60 years of age would be eligible to avail this scheme that comes with a maturity period of 5 years. Notably, individuals can extend its maturity period by another 3 years via a request before it matures. Just like the NSC, the facility of Senior Citizens Savings Scheme cannot be availed by NRIs, PIOs and HUFs.

Also, the facility of premature withdrawal and flexible investment amount in the multiple of Rs. 1000 makes it a suitable investment avenue for many. However, the income earned on this savings scheme is fully taxable under the Income Tax Act and further attracts TDS if its aggregate interest earning is over Rs. 50000. Conversely, under Section 80C, investors can claim a tax deduction on their annual investments.

  • Pradhan Mantri Vaya Vandana Yojana (PMVVY)

This scheme was launched to provide periodic income to the senior citizens via monthly pension while protecting their investments from declining interest rates. The scheme comes with a term of 10 years, and individuals above the age of 60 years can apply for it.

Moreover, the savings scheme comes with a lock-in period of 30 days when availed online, and a nominal stamp charge is deducted while extending the refund. On the other hand, investors are allowed to avail a loan against this pension scheme after 3 years of investment. It is to be noted that the pension ceiling is decided based on investors’ family and their aggregate income. However, the scheme is not quite beneficial in terms of tax savings.

The table below offers a better understanding of income earned through the PMVVY –

Term  Minimum Income Generated Maximum Income Generated
Monthly Rs. 1,000 Rs. 10,000
Quarterly Rs. 3,000 Rs. 30,000
Half-yearly Rs. 6,000 Rs. 60,000
Yearly  Rs. 12,000 Rs.1,20,000

For Girl Child

This small savings scheme is directed towards girl children of India 10 years of age or younger. It is one of the most affordable savings deposit schemes as individuals can open an account under the same with a minimum of Rs. 250. However, in a given financial year individuals can invest up to Rs. 1.5 Lakh in the said scheme.

Notably, such an account can be opened by the parents or legal guardians of the girl child at the nearest post office or authorised financial institutions. Contributions have to be made in this account for a tenure of 15 years.

Account holders can resort to the premature withdrawal facility only in case of funding the beneficiary’s higher education or wedding and withdraw up to 50% of the total deposit. Notably, such withdrawals are allowed for account holders who are above the age of 18 years.

Since the importance of NSS in building a robust fund is undeniable, investors should be careful while opting for a suitable savings scheme. Further, to make the most of these national savings schemes, individuals should take into consideration their eligibility criteria, financial requirement and available scope for investment.

A Gist of Some of the Most Popular National Savings Scheme

Features Post Office Monthly Income Scheme  Post Office RD Scheme PPF NSC
Joint account facility Available Available Not available Available
Interest rate 6.60% (Current) 5.80% 7.10% 6.80%
Maturity  5 years 5 and 10 years 15 years and can be extended by another 5 years 5 and 10 years
Premature withdrawal facility Available Available Available under specific conditions Available under specific conditions
Tax benefits  Not allowed Not allowed Allowed – Both the investment amount and the accumulated returns are exempted from tax under Section 80C. Allowed – Tax benefits up to Rs. 1.5 lakh under Section 80C.

Common Features and Benefits of the National Savings Schemes 

Here’s a list of common features and benefits of these national schemes.

  • Assured Returns

Returns on the NSS schemes are declared before investment and are assured. Also, the fact that they are not linked to market risks ensures fixed returns to investors. This, in turn, encourages them to save more.

  • Safety 

Since the government backs the schemes, the risk of losing one’s principal investment or incurring a loss is eliminated. Such a vital feature allows both risk-averse investors and beginners to adopt a responsible approach towards saving without the fear of eroding it.

  • Tax Benefits

Most National Savings Schemes come with potential tax-saving opportunities under Section 80C. Such benefits tend to inculcate financial discipline and further encourage individuals to save more.

  • Substantial Returns 

Usually, the rate of return on these savings plans is adjusted quarterly. It is mostly done to help individuals earn inflation-adjusted returns and make the most of their investments.

Notably, the features and advantages may vary depending on the type of national scheme one has opted for. Consequently, it is essential to become familiar with the different types of National Savings Schemes to pick the most suitable one.

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