In the provisional budget for 2019-2020, the government proposed to raise the threshold for withholding tax (TDS) on interest received on bank and postal deposits from Rs 10,000 to Rs 40,000. With this announcement , depositors are likely to save more on their investments in postal savings plans – such as the Savings Plan for Seniors (SCSS) and the Public Provident Fund (PPF) – which benefit from tax advantages under section 80C of the Income Tax Act, 1961. The proposed increase in income tax will come into effect on April 1, 2019.
(Also Read: TDS Benefits Announced In Budget 2019 And What They Mean To You)
Here are the key elements to know about the savings plan for the elderly of the post office (SCSS) and the account of the public provident fund (PPF) of the post office:
A postal Caisse d’Epargne Senior (SCSS) account can be opened by a natural person aged 60 or over. A natural person aged 55 or over but under the age of 60 who has retired under a retirement pension or a Voluntary Retirement Scheme (VRS) can also open a SCSS account under certain conditions. In this case, the account is opened within one month of receiving the pension benefits and the amount must not exceed the amount of the pension benefits, according to the India Post website – indiapost.gov.in. A Caisse Publique de Prévoyance (FPP) account can be opened by any natural person with cash or a check.
There can only be one deposit to the SCSS account in multiple of Rs 1,000 where the maximum amount must not exceed Rs 15 lakh. In addition, any number of SCSS accounts can be opened at a post office subject to a maximum investment limit by adding a balance in all accounts, according to the India Post website. PPF accounts, on the other hand, can be opened by an individual with Rs 100 but he must deposit a minimum of Rs 500 during a financial year and a maximum of Rs 1,50,000. The subscriber should not deposit more than Rs. 1 50,000 per year because the excess amount earns no interest and is not eligible for refund under the income tax law, according to India Post.
(Also read: interest rate on fixed deposits offered by SBI, post office)
A Caisse d’Épargne pour les Seniors (SCSS) post office has a term of five years, which can be extended by three years in the year following the term. Meanwhile, PPF accounts mature in 15 years. Subsequently, at the subscriber’s request, it may be extended by one or more blocks of five years each.
A post office SCSS account earns interest at the rate of 8.7% per annum, which is payable from the date of filing March 31 / September 30 / December 31 first, and thereafter interest is payable on March 31, June 30, September 30 and December 31. A PPF account, on the other hand, earns interest at the rate of 8 percent per annum. Interest on deposits is compounded on an annual basis, which means it is added to principal every year.
Under the SCSS, early closure is permitted after one year after deduction of an amount equal to 1.5 percent of the deposit and after two years after deduction of an amount equal to one percent of the deposit. In a PPF account, premature closure is not allowed for 15 years.