Small Savings Schemes: PPF, NSC and Sukanya Samriddhi

How India's government-backed small savings schemes work, their interest rates and tax benefits, and who they suit.

India offers several small savings schemes backed by the central government, available through post offices and banks. They are popular for their safety and, in some cases, tax benefits.

Main schemes

Public Provident Fund (PPF): a 15-year savings account with interest set by the government each quarter. Contributions can qualify for tax deductions under the old tax regime, and interest and maturity amounts are tax-free. Partial withdrawals are allowed after some years.
National Savings Certificate (NSC): a five-year fixed-income certificate.
Sukanya Samriddhi Yojana: a savings scheme for a girl child, launched in 2015, offering relatively high interest and tax benefits, intended for education and marriage expenses.
Senior Citizens Savings Scheme: regular interest payouts for people aged 60 and above.
Post Office savings, time deposits and monthly income schemes.
Kisan Vikas Patra: a certificate that doubles the invested amount over a set period.

Interest rates

The government sets interest rates each quarter, broadly linked to yields on government securities. Rates on small savings schemes are often a little higher than bank fixed deposits of similar length.

Why they matter

Safety: backed by the government.
Tax benefits for some schemes.
Accessibility through post offices, including in rural areas.
Government financing: money collected through small savings helps fund the government’s borrowing.

Saving for a daughter

Parents open a Sukanya Samriddhi account when their daughter is young and deposit a fixed amount each year. The account earns government-set interest, and the maturity amount is tax-free. When she turns 18, part can be withdrawn for higher education. Regular deposits and compounding build a meaningful sum.

Limitations

Long lock-in periods limit access to money. Returns, while safe, may not beat inflation by much. For long-term goals, many advisers suggest combining these schemes with other investments.

Thinking all small savings schemes are tax-free

Tax treatment varies. PPF and Sukanya Samriddhi have tax-free interest, but interest on schemes like NSC and senior citizens' schemes is generally taxable. Checking the rules for each scheme matters.

Key takeaways

Small savings schemes are government-backed and available through post offices and banks.
They include PPF, NSC, Sukanya Samriddhi and the Senior Citizens Savings Scheme.
Interest rates are set quarterly and often slightly exceed bank deposits.
They are safe but have lock-ins, and tax treatment differs between schemes.