Savings Schemes in India

In India, you can invest in a number of such savings schemes, and several of these investments plans have tax deductions and exemptions as per Income Tax Act, 1961. The following are some top saving schemes in India along with their key features:

Senior Citizens Saving Scheme (SCSS) is among the best saving schemes in India that specifically caters to the unique needs of senior citizens (individuals over 60 years of age). The scheme allows only one deposit of Rs. 1,000 (and in multiple of Rs. 1,000), and the sum can be up to 30,00,000 in all such accounts held by an individual. While senior citizen saving scheme has a tenure of 5 years, you can opt for a voluntary extension of 3 years for your deposit. The contribution towards SCSS qualify for tax deduction under section 80C of the Income Tax Act, 1961.

The interest earned in a financial year is paid quarterly, and it is taxable if exceeds Rs. 50,000 in all SCSS accounts, and TDS shall be deducted, at the prescribed rate, from the total interest earned. However, if Form 15G/15H is provided and accrued interest threshold is within the prescribed limit, no TDS will be deducted.

Post office monthly income scheme (POMIS), currently known as National savings monthly income account, is a savings account that can be opened as a single or joint account by an adult individual or by up to 3 adults, respectively. A guardian of a minor or unsound mind individual or a minor above 10 years (in his/her own name) can also apply for this account.

The National Savings Scheme Account can be opened with an initial contribution of Rs. 1000 and in multiple of Rs. 1000. The maximum balance can be Rs. 9 Lakhs and Rs. 15 Lakhs in a single and joint MIS account, respectively. The share of individuals in investment in a joint MIS account shall be equal.

Pre-mature withdrawal is allowed only after completion of 1 year after account opening. In case of closing the account after 1 year of opening and before 3 years, or after 3 years of opening the account and before 5 years, a deduction of 2% or 1%, whichever the case, from the principal is applicable and the rest of the amount is paid to the account holder(s).

This popular MIS account can be closed after 5 years from the date of opening by submitting the relevant applicable for and passbook at the concerned post office. In case the account holder dies before maturity, the contributed amount, along with the interest up to the preceding month in which the refund is made, is refunded to the nominee or their legal heirs.

Mahila Samman Savings Certificate, popularly known as Mahila Samman Saving Scheme, is a special savings scheme for girl children and women. This account can be opened by girls/women as well as by guardians of girl children with a minimum contribution of Rs. 1,000 to a maximum of Rs. 2,00,000 in all such accounts held by them. All deposits in Mahila Samman Savings Scheme can be in multiple of Rs. 100 only.

The interest on the deposit amount is compounded quarterly and is paid to the account holder at the time of closure. Up to 40% of the balance can be withdrawn at the end of the first year of account opening. This account gets matured 2 years after opening, and the amount is paid to the depositor.

Mahila Samman Savings Scheme account features pre-mature closure in the following cases:

• On account holder’s death,
• Six months after account opening without mentioning any reason, or
• On contracting a life-threatening disease or death of the guardian

In such cases, the interest is calculated at a rate 2% less than the actual rate on the principal amount.

Equity-linked savings scheme (ELSS) investments are contribution to mutual funds that are available with the shortest lock-in period of 3 years. At least 80% of ELSS Funds are invested in equity/stocks, having a high long-term compounding potential. ELSS Funds are tax-saver investment instruments under section 80C of the Income Tax Act, 1961.

In other words, you can avail tax deduction up to 1.5 lakhs on your ELSS investments in a financial year. In contrast, the returns on ELSS investments are taxed as per equity mutual fund taxation rules under long-term capital gains (LTCG) at a rate of 10%. Moreover, dividends from ELSS Funds are taxable at 10% as per Dividend Distribution Tax.

The minimum ELSS tax saver mutual fund investment amount is Rs. 100, and it varies between funds. Although there is no limit on the maximum amount, tax deduction is available only on contributions up to 1.5 Lakhs in a financial year.

In Unit Linked Policies, the investment Risk in the investment portfolio is borne by the policyholder. A unit-linked insurance plan, popular as ULIP, offers the dual benefit of insurance and investment in a single plan. In other words, one part of your ULIP premium goes towards the insurance premium while the other is invested in funds of your choice. ULIPs are one of the most tax-efficient investment options in India, as both invested amount (up to 1.5 Lakhs) and returns are tax-deductible under section 80C and Section 10(10D) of the Income Tax Act, respectively.

However, the returns can be taxable if the premiums paid towards a ULIP in a financial year exceed 2.5 Lakhs. The minimum and maximum investments in ULIPs can vary from one fund to another for a period of 5 to 20 years, but the annual tax benefit on ULIPs can be availed is on investment up to 1.5 Lakhs only.

Sukanya Samriddhi Yojana (SSY) is considered as one of the best government-backed savings scheme in India, aiming at helping parents of a girl child to save for her future endeavours like higher education. Launched in January 2015, the scheme allows monetary investment of up to 1.5 lakhs in a financial year. SSY account can be opened by the guardians of a girl child below 10 years of age in here name in a bank or post office in India.

Investments under Sukanya Samriddhi Scheme earn attractive interest over the term of 21 years and qualify for tax deduction under section 80C of the Income Tax Act. Moreover, the interest earned on the investment also get tax exemption. Withdrawals under this scheme are allowed for the sole purpose of higher education of the girl child. However, there is a provision of premature closure of the account in case of marriage.

National Savings Recurring Deposit Scheme (NSRDS) was a savings scheme, especially designed to target individual investors. This government-backed recurring deposit was launched way back in December 1981 to help individuals save and grow their money. However, in December 2019, the government had replaced the existing NSRDS with a new version.

A single adult can open a National Recurring Deposit Account with an initial contribution of Rs. 100 per month, and the subsequent deposits can be in multiple of Rs. 10, with no maximum limit, up to 15th day of the month, in case the account was opened up to 15th of a calendar month. In case the account was opened after 15th of the month, the subsequent payment can be made after 15th and till the last day of the month.

The other options to open this term deposit account is a joint account (up to 3 adults), a guardian on behalf of a minor or a person with unsound mind, or by a minor above 10 years of age in his/her own name. This account comes with a maturity date after 5 years of the date of opening, which means that 60 monthly contributions are required.

These saving schemes mentioned above cater to a wide range of investors with different financial goals. Since most of these schemes are government-backed, the returns on investments are guaranteed with different lock-in periods and applicable rates of interest. It is recommended to invest your money in different investment options to diversify your investment portfolio as well as to minimise the risk.