List of Small Savings Instruments

What are the different types of saving schemes available in India?

There are a several options available when you are looking for saving schemes in India. Many are supported by the Government of India, while RBI and SEBI manage the others. Besides, a number of these schemes offer such kind of income tax exemptions/deductions. List of such saving schemes:

Equity-Linked Savings Scheme (ELSS): ELSS, also known as tax saving funds, are a type of mutual funds. ELSS investments offer tax deductions up to Rs.1.5 lakh under Section 80C. The investment has a mandatory lock-in period of three years. The incomes on the redemption of the investments are taxable as capital gains. The returns enjoy an exemption of up to Rs.1 lakh. Above this amount, they are taxable at 10%.

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ELSS savings have disclosure to the equity market with underlying investments in a combination of debt and equity. The equity component provides higher gains and debt offers a shield against volatility. The scheme provides higher gains over the long term, beyond five years. A SIP (systematic investment) offers stability of investment and brings higher returns. The minimum investment starts at Rs.500.

Fixed Deposits (FD): Fixed deposit accounts are said to be hassle-free and the secured investment option in the market. You deposit any amount that is possible for you, for a particular period that fetches interest as per the rate prevailing on the date of deposit. The scheme provides flexibility in terms of tenancy and the density of interest payout. The interest provided on an FD account is much higher than the one provided on a bank savings account.

If you in need for the money before the maturity date, you can opt to break the FD or even take an overdraft loan on the FD. You also have the option to reinvest the interest to fetch a higher amount at the end of the tenancy. The interest is taxable and can be subject to TDS for payments above Rs.40,000.

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Public Provident Funds (PPF):PPF is a government-backed long-term tax-free savings scheme. The money invested with your PPF account will get tax deduction under Section 80C of the Income Tax Act. The interest fetched from such savings is also tax-free. You can open a PPF account at the nearest bank or post office. The money will be reserved for 15 years and can be increased in blocks of five years after the fulfillment of the lock-in period. Returns will be calculated based on compound interest at the rate of 7.1% per annum. A minimum annual investment of Rs.500 can be made. You can deposit up to Rs.1.5 lakh per annum.

National Savings Certificate (NSC):National Savings Certificate, another government-backed saving scheme, offers guaranteed gains along with a tax saving option. You can deposit in an NSC at the nearest post office. The reserve  period for the scheme is five years. The government assesses the interest rate of the scheme once every quarter and takes a call on it.

Anyhow, the interest rate will not alter during the tenancy after you purchase the certificate. Tax deductions can be claimed on the investment up to Rs.1.5 lakh under Section 80C. At present, the interest rate of 6.8% p.a. is applicable. The interest will be yearly compounded and paid only on maturity. Upon maturity, the interest accumulated is taxable and must be added to the total annual income. The interest reinvested and compounded is qualified for tax deduction under Section 80C.

Post Office Monthly Income Scheme: Post Office Monthly Income Scheme is same as the regular savings bank account. Individual account holders can deposit from a minimum of Rs.1,500 up to Rs.4.5 lakh in the scheme. The account holder can get a fixed monthly income in the form of interest credited to the savings account with the same post office. The present interest rate is 6.6% p.a. The scheme is open only for resident Indian citizens. In case of joint account holders, two or three individuals can deposit together up to a maximum Rs.9 lakh in the scheme. The investments and interest fetched are not meant for any tax deduction or exemption.

Senior Citizens Savings Scheme (SCSS): SCSS is made for senior citizens who want to invest their retirement funds. Individuals aged between 55 years and 60 years with early retirement can also choose for the scheme within one month from the receipt of their retirement benefits. SCSS lets only one deposit. The minimum investment is Rs.1,000, and the maximum is Rs.15 lakh.

The tenancy of the scheme is five years and can be alternately expanded for another three years. It comes with an interest rate of 7.4% per annum. The interest is credited quarterly in a savings account sustained with the same post office. The investment in SCSS is eligible for deduction under Section 80C up to a maximum of Rs.1.5 lakh. The interest got yearly is taxable. But, the senior citizens can demand a deduction of up to Rs.50,000 under Section 80TTB.

Kisan Vikas Patra (KVP): You can invest in Kisan Vikas Patra, a fixed-rate small savings scheme, by visiting your nearest post office. The investment has a tenancy of 124 months at an interest rate of 6.9% p.a. Your money stands doubled at the end of the tenure of ten years and four months (124 months). The scheme motivates long-term investments and is suitable for risk-averse investors who have excess money.

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The minimum investment is Rs.1,000 with no maximum limit on investments. KVP provides guaranteed gains and comes with a premature encashment option after finishing two and a half years. There is a chance of changes in the maturity period based on interest rate alteration. Anyhow, the maturity value will be mentioned on your certificate. The investment and interest earned are not qualified for a tax deduction or an exemption. You can use the certificate as a security to get loans from banks.

Sukanya Samruddhi Yojana (SSY): The SSY scheme was inaugrated by the Prime Minister Narendra Modi targeting at securing a girl child’s future. This government-backed scheme can be opened by the parents of a girl child aged under 10 years. Parents must contribute for 15 years. Individuals can get a tax deduction of up to Rs.1.5 lakh per year under Section 80C. A maximum of two such accounts can be opened per family, one for each girl child.

In the case of more than two girl children in a family, the rest of the girl children cannot get the benefits of the account. Individuals can deposit a minimum of Rs.250 and up to a maximum of Rs.1.5 lakh per annum. The current rate of interest is 7.6% p.a. The tenancy of the account is 21 years from the date of opening or until the girl child gets married after the age of 18 years. The scheme lets for a partial withdrawal of up to 50% of the balance after reaching18 years, for meeting expenses of higher education.

Atal Pension Yojana (APY): The APY scheme is titled after the former Prime Minister of India, Mr Atal Bihari Vajpayee. It majorly aims the welfare of the weaker section of the society, especially those from the unorganised sectors and involves a very low premium. Individuals within the age group of 18-40 years are qualified to apply for the scheme.

The premium must be paid for a minimum of 20 years. Unlike other schemes, you have to aim a monthly pension you want to get to figure out the monthly contribution you need to make. The contribution also depends on the age at which you are beginning the contribution. The monthly minimum pension you can get is Rs.1,000, and the maximum is Rs.5,000, upon reaching the age of 60.

The government will make a co-contribution of 50% of your yearly contribution or Rs.1,000 per annum, whichever is lesser. Such co-contribution will be made for five years if you have subscribed for the scheme between 1 June 2015 and 31 December 2015 to get this advantage. You will be qualified for a government contribution if you do not have any other statutory saving schemes and if you are not an income taxpayer.

National Pension System (NPS): National Pension System is an enterprise by the Central Government and makes a reliable source of income after retirement. The scheme is open for state and central government employees and private employees in organised and unorganised sectors. The scheme is for Indian citizens in the age group of 18 years to 60 years. The amount of contribution is made from the employee’s monthly salary, and an equal amount will be contributed by the workers (including government employees).

The contribution is 14% in the case of government employees, and 10% in case of any other employees. In the case of other qualified salaried employees, NPS serves same as any other long-term pension schemes. The employer’s and employee’s contribution is qualified for tax deduction under Section 80C up to a limit of Rs.1.5 lakh. Individuals can make a self contribution and demand an additional deduction of Rs.50,000. Upon retirement, the account holders can withdraw up to 60% of the corpus tax-free. The balance 40% is used to purchase an annuity plan to get a monthly pension after retirement.

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Employees Provident Fund (EPF): Employee Provident Fund (EPF) is a savings scheme functioned under the EPFO guidelines. An employer and employee covered under EPF have to compulsorily contribute to a Provident Fund (PF) account in the name of the employee. EPF provides long-term retirement planning for the working class. The account is transferable from one employer to another.

The account can be conserved until retirement. The employer and employee contribute 12% of the monthly salary into the provident fund account. The account if qualified for interest on the accrued balances. The interest rate for FY 2020-21 is 8.5% p.a. The account also provides financial security for the account holders in case of emergencies. The employees’ contribution is qualified for deduction under Section 80C.

Voluntary Provident Fund (VPF): Salaried individuals can choose for an additional contribution of up to 100% of their basic salary and dearness allowance over and above the 12% contribution done to the Employee Provident Fund (EPF). An interest rate of 8.5% can be collected on the accumulated funds. You must know that the employer will not make any contribution when you choose for VPF.

Pradhan Mantri Jan Dhan Yojana: Pradhan Mantri Jan Dhan Yojana is a savings scheme that is tailor-made for citizens who are below the poverty line. The account holders can make use of the scheme for reinvestments. The scheme is easy for this class of people as they do not have to keep a minimum balance in their accounts.

They will get additional accidental insurance cover of Rs.1 lakh and a life cover of Rs.30,000 that is payable on the death of the beneficiary. The government has made this scheme more user-friendly with the mobile banking facility. In addition to the other benefits, account holders can also get interest on their deposits. The account holders will also be qualified for an overdraft facility of up to Rs.5,000 appropriate to one account per family.

Deposit Scheme for Retiring Government Employees: This saving scheme is restricted to the retiring public sector employees. You must start an account with any bank or post office within three months from the receipt of your retirement benefits. The interest will be paid out on a half-yearly basis, on 30 June and 31 December.

You can make withdrawals from the account after finishing one year. You can make a maximum of one withdrawal in a calendar year and must be in multiples of Rs.1,000. An interest rate of 7% p.a. will be applicable from the date of deposit. The interest is qualified for tax exemption under section 10(15)(iv)(i).

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