New Delhi: Small savings schemes, bank fixed deposits, recurring deposits, and other government-aided investment options are some of the conventional choices for investment for the salaried-class individuals, middle-income taxpayers and other risk-averse investors. The prime benefit of investing in small savings schemes is the fixed returns, tax breaks on investment and tax-free withdrawals on some schemes.
All such small savings schemes have a mandatory lock-in period from 5 to 15 years following which individuals become eligible to claim the income tax deductions while filing income tax returns. Very recently, the government has slashed the interest rates on small savings schemes by 10 basis points or 0.1 per cent for the July-September quarter.
The rate revision in the interest rate offered on the small savings scheme has been done to match up the repo rate cut by the Reserve Bank of India (RBI). In 2019 itself, the RBI has cut the repo rates by 25 basis points in the three Monetary Policy Committee (MPC) meetings in February, April and June. Therefore, the effective reduction in repo rates in 2019 is 75 basis points or 0.75 per cent.
“On the basis of the decision of the government, interest rates for small savings schemes are to be notified on a quarterly basis,” the Finance Ministry said in a statement while updating the rates on small savings scheme for July-September quarter of the financial year 2019-20.
The government has revised the interest rates on small savings scheme including Public Provident Fund (PPF), Sukanya Samriddhi Account (SSA), National Savings Certificate (NSC), Kisan Vikas Patrika (KVP), term deposits of various tenures, Senior Citizens Savings Scheme (SCSS).
Senior Citizen Savings Scheme and Sukanya Samriddhi Account will not fetch a lower rate of interest at 8.6 per cent and 8.4 per cent, down by 0.1 per cent, respectively, from the previous rate of 8.7 per cent and 8.5 per cent. Public Provident Fund and National Savings Certificate will generate a return of 7.9 per cent each, down by 0.1 per cent from the earlier rate of 8 per cent, while fixed deposits of tenure between 1 to 3 years will fetch 6.9 per cent and the five-year fixed deposit will offer a return of 7.7 per cent.
Recurring deposit (RD) rates have been revised down to 7.2 per cent from 7.3 per cent. The Kisan Vikas Patrika with a maturity of 113 months will fetch 7.6 per cent. According to the official directive, the government has revised the interest rates on all the small savings scheme by 0.1 per cent except for savings deposit account. Savings account with banks and post offices will continue to fetch the interest of 4 per cent.