Tax-Saving Post Office Schemes: From PPF to SSY – Top post office schemes offering up to 8.2% interest | LIST

Tax Saving Post Office Scheme: Millions of investors in India still rely on small savings schemes. The reason is clear, government guarantees, fixed returns, and minimal risk. However, not all schemes are equal when it comes to tax. The real game plays out in three stages -- at the time of investment, during interest accrual, and at maturity. Small savings schemes are certainly safe, but the real difference lies in their tax treatment. Among post office schemes, PPF and SSY offer a completely tax-free cycle. NSC offers partial relief, while POMIS and KVP offer security with limited or no tax benefits. Don't just look at the interest rate before investing—understand the tax implications across all three stages. After all, it's the money saved on taxes that maximises your real returns. So, let's look at which schemes fill your pockets and which ones reduce your tax returns.

The Public Provident Fund (PPF) currently offers an annual interest rate of 7.1% and is considered the gold standard for tax savings. Investments can range from Rs. 500 to Rs. 1.5 lakh annually.

Up to Rs. 1.5 lakh is eligible for deduction under Section 80C under the old tax regime. The interest earned on the investment is completely tax-free. Upon maturity after 15 years, the entire amount is received without any income tax. This means tax relief at all three stages: investment, growth, and withdrawal. This is why PPF is considered the strongest option for the EEE category.

The Sukanya Samriddhi Yojana (SSY) currently offers an interest rate of 8.2 per cent, one of the highest among small savings schemes. Investments are eligible for a tax deduction of up to Rs 1.5 lakh under Section 80C. Interest accumulated in the account is completely tax-free. The entire maturity amount after 21 years is also tax-free. Partial withdrawals of up to 50% are also available after the age of 18, especially for higher education. This means it's a strong option on both tax and return fronts.

National Savings Certificate

National Savings Certificates (NSCs) offer 7.7 per cent interest and a lock-in period of 5 years. Investments are eligible for deduction under Section 80C. Importantly, interest earned for the first four years is considered "reinvested" and is also eligible for deduction under Section 80C.

Interest in the fifth year becomes taxable and must be shown under "Income from Other Sources". TDS is not deducted upon maturity, but income must be declared. This scheme is ideal for those who want to do tax planning over a five-year period.

Post Office 5-Year Time Deposit

Post Office Time Deposits only qualify for Section 80C for 5-year deposits. This benefit is not available for 1-, 2-, or 3-year deposits. However, interest is taxable each year according to your income tax slab. TDS may also be deducted if the total interest exceeds a certain limit. No additional tax deduction is available upon maturity.

The Post Office Monthly Income Scheme (POMIS) is popular among those who need a fixed monthly income. However, there is no 80C deduction on the investment. The monthly interest earned is fully taxable. TDS may apply if the total interest exceeds Rs 50,000 (Rs 1 lakh for senior citizens, effective April 1, 2025). Only the principal amount is returned upon maturity.

Senior Citizen's Savings Scheme

The Senior Citizens Savings Scheme (SCSS) pays quarterly interest and is eligible for a deduction of up to Rs 1.5 lakh under Section 80C. However, the interest is fully taxable. Senior citizens can claim an additional deduction of up to Rs 50,000 on interest under Section 80TTB. TDS is applicable if the interest exceeds Rs 1 lakh.

Kisan Vikas Patra (KVP) doubles money in approximately 115 months with a 7.5 per cent interest rate. However, there is no 80C deduction on the investment. The interest is taxable annually, even if the payment is received at maturity. There is no tax exemption on withdrawals either. Premature withdrawal is available after 2.5 years, but with certain conditions.

(Disclaimer: The above article is meant for informational purposes only, and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money related decisions.)