Know the changes in SCSS, PPF, time deposit norms

The Centre has relaxed norms for various small savings schemes such as Public Provident Fund (PPF), Senior Citizen’s Savings Scheme (SCSS), and Time Deposit Scheme. These three are extremely popular among the nine types of small savings schemes that the government offers.

The government notified the changes in a gazette notification on November 9, 2023.

The change in PPF pertains to its premature closure and the calculation of interest rate.

Previously, premature closure would result in interest being allowed at a rate 1% lower than the rate at which interest had been credited in the account since its opening or extension.

However, under the new rule, in the Public Provident Fund Scheme, 2019, in paragraph 13, in the second proviso, for the words “or the date of extension of the account”, the words “or from the date of commencement of the current block period of five years” shall be substituted.

So far an individual could open a Senior Citizen’s Savings Scheme within one month of the date of receipt of their retirement benefits. The new norm will allow the individual to open an account within three months from such receipt. But the depositor has to furnish proof of date of disbursal of retirement benefit now just as he/she had to do it in the past.

The notification also laid down that if a National Savings Time Deposit account is closed and the amount withdrawn prematurely after four years, the interest that he/she would be eligible to receive would be the rate applicable to Post Office Savings Account. This is a change from the existing practice which states that if a five-year time deposit account is closed after four years, the rate of interest applicable to a three-year time deposit account would be to the prematurely withdrawn amount.

Tthe interest rates payable for small savings instruments are the following – PPF 7.1%, Senior Citizens Savings Scheme 8.2%, Sukanya Yojana 8.0%, NSC 7.7%, PO-Monthly Income Scheme 7.4%, Kisan Vikas Patra 7.5%, 1-Year Deposit 6.9%, 2-Year Deposit 7.0%, 3-Year Deposit 7.0%, 5-Year Deposit 7.5%, 5-Year RD 6.7%

Small Savings Scheme are of special attraction to a large number of middle class and lower middle class citizens since some offer tax breaks under Section 80C of the I-T Act up to Rs 1.5 lakh a year.

Impact on the larger economy

Small savings amounts also help the government by easing its borrowing pressure. Interestingly, the Senior Citizen Savings Scheme itself has garnered over Rs 1 lakh crore in this financial year. In the last financial  year, the amount collected through SSC was Rs 40,000 crore.

According to the finance ministry’s plan Rs 4.71 lakh crore from the small savings collections will be used to fund the fiscal deficit of Rs 17.87 lakh crore in FY24.

The increase in the collections under the senior citizens scheme has taken place following the increase in its deposit limit from Rs 15 lakh earlier to Rs 30 lakh this year. The rate of interest was hiked from 8% to 8.2%.