Small Saving Schemes/Instruments in India
- November 14, 2023
- Posted by: OptimizeIAS Team
- Category: DPN Topics
Small Saving Schemes/Instruments in India
Section: Monetary Policy
About Senior Citizen Savings Scheme (SCSS)
The Senior Citizen Savings Scheme (SCSS) is a government-backed savings scheme designed for individuals aged 60 years and above, or those aged 55 to less than 60 who have retired.
- Eligibility: Individuals aged 60 years and above, or those aged 55 to less than 60 who have retired.
- Account Opening: Can be opened in a post office or scheduled commercial bank.
- Investment Amount: Minimum of ₹1,000 and a maximum of ₹30 lakh.
- Interest Rate: The interest rate is 8.2% per annum, revised quarterly based on factors like inflation and market conditions.
- Tenure: The initial tenure is five years, extendable.
Latest Changes (November 7, 2023):
- Spouse Provision: The spouse of a government employee, who has attained the age of 50 years and has died in service, is allowed to open an account under this scheme.
- Account Opening Time: The account can be opened within three months from the date of receipt of retirement benefits for a living employee, or admissible financial assistance to an eligible government employee who died in service.
- Extension: The account can be extended for a further block period of three years, and this facility can be used more than once.
- Interest on Extension: In case of an account extended after maturity, the deposit will earn interest at the rate applicable on the date of maturity.
- Premature Closure:If the account is closed before one year, interest will be recovered. For closure after two years, an amount equal to 1% of the deposit will be deducted.
- Budgetary Change (April 1, 2023):The maximum deposit limit was enhanced to ₹30 lakh from ₹15 lakh.
- Tax Deduction: Individuals can claim up to ₹1.5 lakh in a financial year under Section 80C of the Income Tax Act.
- Tax on Interest: Interest payments are subject to taxation as per the individual’s tax slab rates.
- TDS:If the interest income exceeds ₹50,000 in a year, TDS is applicable.
These changes aim to make the scheme more flexible and beneficial for senior citizens, providing additional provisions and an increased deposit limit.
Small Saving Schemes/Instruments in India
Small Saving Schemes form a crucial part of the central government’s strategy to promote regular savings among citizens, offering attractive returns, sovereign guarantees, and tax benefits. These schemes are instrumental in mobilizing household savings and contribute significantly to financing government deficits.
- Variety of Instruments: There are 12 small saving instruments, classified into Postal Deposits, Savings Certificates, and Social Security Schemes.
- Assured Interest: Depositors receive a guaranteed interest rate on their investments, providing financial security.
- National Small Savings Fund (NSSF): Collections from all small savings instruments are channeled into the National Small Savings Fund, contributing to government finances.
- Yield Calculation: Interest rates on these schemes are determined based on the yields on government securities (G-secs), ensuring stability and alignment with market conditions.
- Government Deficit Financing: Small savings have become a significant source for financing government deficits.
Classification of Small Saving Instruments:
- Postal Deposits:
- Savings Account: Offers a secure and interest-bearing savings option.
- Recurring Deposits: Regular monthly savings with fixed tenure.
- Time Deposits: Fixed deposits with varying maturities.
- Monthly Income Scheme: Provides monthly income to investors.
- Savings Certificates:
- National Small Savings Certificate (NSC): Long-term savings instrument with assured returns.
- Kisan Vikas Patra (KVP): A scheme aimed at farmers, promoting long-term savings.
- Social Security Schemes:
- Sukanya Samriddhi Scheme: Launched under the Beti Bachao Beti Padhao campaign, exclusively for girl children, with a guaranteed return and tax benefits.
- Public Provident Fund (PPF): Public Provident Fund is a government-backed savings scheme that encourages small savings for individuals. It offers safety with attractive interest rates and returns that are fully exempt from tax.
Eligibility: Open to all Indian residents.
Features: Has a lock-in period of 15 years, with partial withdrawals allowed after the 7th year. Provides tax benefits under Section 80C of the Income Tax Act.
- Senior Citizens Savings Scheme (SCSS):Tailored for senior citizens, offering regular interest payments.
- Sukanya Samriddhi Yojana (SSY):
- Description: Sukanya Samriddhi Yojana is a government-backed savings scheme specifically designed for the financial needs of the girl child. It was introduced in 2015 as part of the ‘Beti Bachao, Beti Padhao’ campaign.
- Eligibility: Parents or legal guardians can open an account for a girl child below ten years of age.
- Offers a guaranteed return of 7.6% per annum.
- Eligible for tax benefits under Section 80C of the Income Tax Act.
- The tenure of the deposit is 21 years from the date of opening, with a maximum annual investment limit of Rs 1.5 lakh.
About National Small Savings Fund (NSSF)
The National Small Savings Fund (NSSF) is a fund created by the Indian government to manage the proceeds from various small saving schemes. It serves as the repository for collections from these schemes and plays a crucial role in financing the government’s fiscal deficit.
- Objective: The primary purpose of establishing the NSSF is to pool funds from small savings schemes and utilize them for meeting the fiscal requirements of the government.
- Source of Funding: Collections from different small savings instruments, such as postal deposits, savings certificates, and social security schemes, are credited to the NSSF.
- Utilization: The funds collected in the NSSF are utilized by the government for various developmental and welfare activities. They contribute to financing the fiscal deficit, which is the gap between government expenditure and revenue.
- Sovereign Guarantee: The investments made through small saving schemes come with a sovereign guarantee, assuring depositors of the safety of their investments.
- Interest Rates: The interest rates offered on small savings schemes are determined, in part, by the yields on government securities (G-secs). The NSSF plays a role in aligning these rates with market conditions.
- Contribution to Government Finances: Small savings, managed through the NSSF, constitute a significant source of funding for the government. The interest paid on these savings contributes to the overall revenue.
- Stability: The NSSF provides stability to the small savings system by ensuring that funds are available for government projects and welfare schemes.
- Government Securities: The NSSF may invest in government securities, contributing to the overall liquidity and stability of the financial markets.
Other important Schemes
- APY – Atal Pension Yojana:
- Description: Atal Pension Yojana is a social security scheme initiated by the Indian government. It aims to provide a defined pension to individuals working in the unorganized sector.
- Eligibility: Individuals aged 18 to 40 years who are not income tax payers.
- Features: Offers a fixed pension amount of Rs. 1000, 2000, 3000, 4000 and 5000/- based on the subscriber’s contribution and age. The pension is provided from the age of 60.
- NPS – National Pension Scheme:
- Description: The National Pension Scheme is a voluntary, long-term retirement savings scheme designed to enable systematic savings. It allows individuals to contribute regularly in a pension account during their working life.
- Eligibility: Open to all citizens of India, including NRIs (between 18 and 70 years of age).
- Features: Provides a mix of equity, fixed deposits, corporate bonds, liquid funds, and government funds. Subscribers receive a Permanent Retirement Account Number (PRAN).
- SGBs – Sovereign Gold Bonds:
- Description: Sovereign Gold Bonds are government securities denominated in grams of gold. They provide an alternative to holding physical gold.
- Eligibility:Open to all Indian residents and eligible entities, including trusts, universities, and charitable institutions.
- Features: Offers a fixed interest rate along with potential capital appreciation. Bonds have a maturity period of eight years, with an exit option after the fifth year.