Post Office Tax Saving Scheme 2023 - Tax Benefits & Interest Rates

Post office tax saving schemes are risk-free investment tools that offer guaranteed income. Post office schemes to save tax have become increasingly popular among Indians owing to their low risk and ease of accessibility to nearby Indian Post Office. Investments using these schemes also qualify users for tax exemption under Section 80c of the 1961 Income Tax Act.

In other words, post office tax saving schemes offer reliable returns on investment and can help investors make a secure investment with minimal risk. The investment risk also reduces as the Government of India supports and backs the post office tax saving schemes.

This blog will enlighten readers about different post office tax-saving schemes and their key features. So, let's get started.

Different Types of Post Office Schemes to Save Tax

Different post office saving schemes for tax benefits are available for diverse investors. Some of the key Indian post office tax saving schemes are Public Provident Fund (PPF), National Savings Certificate (NSC), Post Office Saving Accounts (POSA), Sukanya Samriddhi Account (SSA), Senior Citizen Savings Schemes (SCSS), 5-year Post Office Time Deposit (POTD).

Depending on the eligibility and requirements, investors can invest in the following post office tax saving schemes. Here's a detailed look into these best post office schemes for tax savings.

Public Provident Fund or PPF

Public Provident Fund (PPF) is a long-term investment plan that offers guaranteed returns. This post office tax scheme is ideal for investors seeking long-term goals, such as retirement plans.

Investors can open only a single PPF account against their name, and there is no provision for a joint account at present. PPF allows nomination facilities, and account holders are eligible to transfer their accounts from one Indian post office to another. Some of the other features of this  post office income tax saving scheme are:

• The total tenure of this post office tax saving scheme is 15 years.
• Investors must make a minimum investment of INR 500 per year. Failure to make a minimum deposit can result in the discontinuation of the account.
• The maximum deposit is currently capped at INR 1.5 Lakh for a single financial year.
• The annual PPF interest rate, at present, is 7.1%.
• This post office saving scheme for tax benefits automatically matures after 15 years. However, investors can extend their PPF account tenure further in five-year blocks.
• Investors can only withdraw funds after the completion of five years. However, certain relaxations are also offered in the circumstances, such as life-threatening diseases, changes in residence, or higher education.
• Investors can only make a partial withdrawal of funds after seven years. Likewise, loans can only be availed after four years.
• There are no interest pay-out facilities for this tax saving scheme under 80C.
• Post office tax saving schemes are tax-exempted under section 80C of the 1961 Income Tax Act. Moreover, the earned interest is also entirely tax-free.

5-Year Post Office Time Deposit or POTD

One of the widely popular post office saving schemes for tax benefits is the 5-year post office time deposit (POTD) scheme, which allows investors to enjoy higher returns through an easy enrollment process.

This post office tax saving scheme is similar to a bank fixed deposit, with different tenures, such as 1, 2, 3, and 5 years. Some of the other important features of this tax saving scheme are:

• The maximum duration of the POTD is currently capped at five years. 
• Multiple deposits can be made in more than one post office.
• This scheme offers reinvestment of the interest in the scheme. 
• Unless it is a five-year POTD, interest earned on this deposit is tax-exempted. Otherwise, interest earned against other tenure-type is taxable. 
• The minimum investment amount in this Indian post office tax saving scheme is INR 1,000, and there is no upper cap. However, it should be noted that the tax benefit is only limited to INR 1.5 Lakh. 
• Investors can only reinvest or cash out their TD after six months. For premature withdrawal of cash between six and 12 months, different post office tax saving schemes are applicable. In other words, different interest rates are applicable for different investment periods.For example, the interest rate applicable for the POTD of 1, 2, and 3-year tenure is 5.5%. On the other hand, the applicable interest rate for the POTD of 5 years tenure is 6.7%.

Sukanya Samriddhi Account or SSA

Sukanya Samriddhi Account (SSA) is an exclusive Indian post office tax saving scheme for a girl child. This account was inspired by the "Beti Bachao, Beti Padhao" campaign and is operated under the Sukanya Samriddhi Yojna.

This account thus allows parents of the girl child to save income or money towards the girl child's education and marriage. Some significant features of this tax saving scheme under 80C are:

• A legal guardian can only open the Sukanya Samriddhi account for their girl child. 
• Only a single account is permitted for one girl child, with a maximum of two accounts opening in a family. 
• This account can only be opened for a girl child below ten years. 
• The total duration of the post office income tax saving scheme is 21 years regardless of the age of the girl child at the time of account opening.For example, if a girl child is six years at the time of account opening, then the account will expire when the girl reaches the age of 27 years.
• The minimum and maximum amount of yearly deposit for this post office income tax saving scheme for girl child are INR 50 and INR 1.5 Lakh, respectively.
• Scheme users need to deposit for 15 years. Failing to do the same can result in the discontinuation of the account. If the individuals miss making the yearly deposit, they can still revive their account by paying a penalty of INR 50 per year along with the minimum deposit amount (INR 50) for that year. 
• Individuals can also close the account before it matures in situations such as the marriage of the account holder. However, it is required that the account holder must reach a minimum of 18 years of age. 
• Once the account holder attains the legal age of 18, the account holder is eligible to draw partial withdrawals (up to 50%). In the case of a medical emergency, an account holder can prematurely withdraw, given that the investment has been made for at least a duration of 5 years. 
• This post office tax saving scheme under 80c qualifies for tax benefits. 
• The interest rate applicable for the Samriddhi Account is 7.6% annually. 

National Savings Certificate or NSC

National Savings Certificate (NSC) is one of the small best post office schemes for tax savings, which is perfect for low and middle-income Indians. In addition, the interest earned from this scheme can be automatically reinvested.

This means individuals can earn higher returns from this post office tax saving scheme. NSC requires users to pay the entire investment amount at once. Users will receive the principal amount and the interest once the scheme matures. Some of the other features of this post office saving scheme for tax benefits are:

• The total tenure of the scheme is five years.
• The minimum depositing amount for this post office tax saving scheme is INR 1,000.
• The National Savings Certificate can be purchased by an adult and jointly by three adults. Minors can also purchase this certificate above ten years of age and an adult on behalf of a minor below ten years of age.
• A legal guardian can also purchase this scheme on behalf of an individual with limited mental capacity.
• The scheme is transferable to another user, but it can only be done once for five years.
• The applicable interest rate under this post office income tax saving scheme is 6.8% per annum.
• The total interest earned on this post office income tax saving scheme at the time of maturity and withdrawal is taxable. 

Senior Citizen Savings Scheme or SCSS

Senior Citizen Savings Scheme (SCSS) is an exclusive post office income tax saving scheme for senior citizen depositors, i.e., persons over 60 years of age. Thus, this scheme's primary aim is to offer senior citizens an opportunity to receive general regular income in the form of interest.

This facility makes this post office income tax saving scheme an ideal investment scheme for retiring or retired individuals. Here are more features of this scheme:

• Any senior citizen can open multiple accounts in any Indian post office, subject to a maximum investment limit of INR 15 Lakh.
• Investors can open a joint account with their partners under this post office income tax saving scheme.
• The lock-in period of the post office income tax saving scheme is capped at five years. However, one can withdraw investments prematurely, provided they pay a penalty of 1.5% of the deposit after one year.Likewise, if the premature withdrawal of the amount is made after two years, a penalty of 1% of the total deposit will be applicable. In addition, no interest will be paid if the account is closed before one year.
• The interest earned is applicable at the rate of 7.40% per annum, which is payable quarterly.
• This is one of the ideal post office tax saving schemes under 80c for saving tax. However, TDS will be applicable if the amount of interest exceeds INR 40,000.
• Depositors can also extend the tenure of their post office tax saving scheme for another three years, even after maturity.

Comparison of Different Indian Post Office Tax Saving Schemes

Different Indian post office tax saving schemes follow different eligibility criteria and requirements. Scheme users need to ensure that they meet the respective guidelines before applying for any scheme.

The table below enlists the primary features of five different Indian post office tax saving schemes to help users decide which scheme to apply for.

Key Features of Post Office Tax Saving Schemes

• Indian post office tax saving schemes are operable via various post offices in India, making availability to these post office tax saving schemes relatively easier.
• These best post office tax savings schemes are suitable for a diverse group of investors.
• Indian post office tax saving schemes are funded and supported by the Government of India, making the investment risk almost zero.
• These post office tax saving schemes provide numerous benefits as per various sections of the Income Tax Act, 1961.
• Some post office schemes to save tax are exclusively designed to cater to vulnerable populations, such as girl children and the elderly. For example, the Sukanya Samriddhi Account allows the girl child's legal guardian to save money for the girl's education and marriage.
• While these post office tax saving schemes are tax exempted, certain preconditions do apply. For example, if the interest earned on the scheme exceeds the maximum amount, TDS will be applicable.
• One of the lesser-known Indian post office schemes to save tax is Kisan Vikas Patra (KSV), which allows doubling one's investment over the tenure of 124 months of the account. Depending on the tenure of the account, different interest rates are offered.
• Thanks to recent upgrades, potential scheme users can now enrol online on any listed post office tax-saving schemes. Procedures and documentation required for applying for these schemes are limited, simpler, and safer.

Frequently Asked Questions (FAQs)

Who qualifies for the post office tax saving schemes under 80c?

Different age and gender-related eligibility criteria have been established for different post office tax saving schemes under 80c.

For some schemes, all Indian residents are eligible, while others (e.g., Sukanya Samriddhi Yojna account (SSYA) and Senior Citizen Savings Scheme (SCSS) are exclusive for certain age and gender groups. 

What are the best post office schemes to save tax for retirement?

Retired or retiring individuals can invest in Public Provident Fund (PPF) or Senior Citizen Savings Scheme (SCSS). These post office tax saving schemes offer higher returns and good tax benefits.

One can generate regular income from the interest earned through these schemes. Enrollment in these schemes can also be done online. 

Is investing in a post office income tax saving scheme risk-free?

Since these Indian post office tax saving schemes are assisted by the Government of India (GOI), there are no market-related risks while investing in any post office saving scheme for tax benefit.

What are some benefits of applying for the Indian post office tax saving scheme? 

Any investors looking for an investment that offers higher returns and tax-exemption facilities can avail of these Indian post office tax-saving schemes.

Such schemes offer assured returns once the post office tax saving schemes mature and are not vulnerable to market fluctuations. One can also save substantial income tax with minimal to no risk to the principal amount invested.

How many accounts can an individual open under the Senior Citizen Savings Scheme (SCSS)? 

A. Any individual above the age of 60 can open multiple accounts under the Senior Citizen Savings Scheme (SCSS). However, the deposit amount should not exceed the maximum cap of INR 15 lakh.