Context: Recently, the Indian government raised the interest rates on Sukanya Samriddhi Scheme and three-year Term Deposit (TD) Scheme for the January-March quarter, while retaining the rates for all other Small Savings Schemes.
Centre Hikes Interest Rates On Small Saving Schemes
- As per the latest revised list, the interest rate of Sukanya Samriddhi Scheme will be 8.2% from the existing 8%, while for 3-year TD it would be 7.1% from the existing 7% for the last quarter of the current fiscal.
- The Public Provident Fund (PPF) rates were kept unchanged for more than 3 years.
About Public Provident Fund (PPF)
- It is a long-term savings scheme in India to help individuals make small savings and provide returns on the savings.
- It was first offered to the public in the year 1968 by the Finance Ministry’s National Savings Institute.
- Significance: Guaranteed returns and investment is tax-exempt under section 80C of the Income Tax Ac.
About Small Savings Schemes
- These are a set of savings instruments managed by the Central Government.
- Aim: To encourage citizens to save regularly and achieve their financial goals.
- Features:
- All deposits under small savings schemes are credited to the ‘National Small Savings Fund.
- The rates on these small savings schemes are calculated on the yields on government securities (G-secs).
- Small savings have emerged as a key source of financing the government deficit.
- Categories: Small savings schemes have three categories:
- Postal Deposits: It includes savings account, recurring deposits, time deposits of varying maturities and monthly income scheme.
- Savings Certificates: National Small Savings Certificate (NSC) and Kisan Vikas Patra (KVP).
- Social Security Schemes: Sukanya Samriddhi Scheme, Public Provident Fund (PPF) and Senior Citizens’ Savings Scheme (SCSS).
- Significance:
- Instruments To Save Income Tax: Under Section 80C of the Income Tax Act, individuals can claim deductions of up to Rs 1.5 lakh per year from their taxable income by investing in PPF, SCSS, NSC, SSY, and the 5-Year Post Office Time Deposit Scheme.
- Regular Revision of Interest Rate: The interest rate on small savings instruments such as the NSC, KVP and PPF are revised every quarter in line with the market rate for the 10-year government security.
- Basis of this Revision of Interest Rate: It is based on a formula devised by a committee led by former Reserve Bank of India Governor Shyamala Gopinath.
- The committee had recommended that the interest rates of different schemes should be 25-100 bps higher than the yields of the government bonds of similar maturity.
About Sukanya Samriddhi Yojana (SSY)
- Aim: It was launched on 22 January 2015 for the betterment of the girl child in the country.
- Deposit Scheme for Girls Children: It is a small deposit scheme for girls children which was launched as a part of the ‘Beti Bachao Beti Padhao’ campaign.
- Contribution Limit: The minimum annual contribution is ₹250 and the maximum contribution is ₹1.5 Lakh in a financial year.
- Withdrawal & Maturity Rules: After a girl reaches 18 years of age, guardians can withdraw money from the account up to 50% of the balance in a financial year.
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- According to the regulations set by the Department of Posts, withdrawals can be accomplished in a single transaction or installments, with a maximum of one withdrawal per year with up to a limit of 5 years.
Significance:
- Guaranteed Returns: Being a government-backed scheme, an SSY offers guaranteed returns.
- Tax Benefits: The interest generated through the Sukanya Samriddhi Account (SSA) is tax-free.
- An investor can claim income tax benefits on up to ₹1.50 lakh invested in an SSY account in the single financial year under Section 80C of the Income Tax Act.
About Beti Bachao Beti Padhao Scheme
- It is a campaign of the Indian Government to address the issue of the declining child sex ratio in India.
- Ministry of Women and Child Development, Ministry of Health, Family Welfare and Ministry of Education.
December 30, 2023
