5 Post Office saving schemes to invest in for better Income-Tax benefits

Money does not grow until it is invested. But what's better, when you can also get income tax benefits on your investment! There are many products available in the market that not only grow investor's money but also allow them to save on tax. The small saving schemes offered by post office should be on every investor's radar for this purpose. 15-Year Public Provident Fund (PPF), National Savings Certificate (NSC), Post Office Time Deposit (5 year), Post Office Monthly Income Scheme, 5-Year Post Office Recurring Deposit Account (RD),  Post Office Time Deposit Account, Senior Citizen Savings Scheme (SCSS), Kisan Vikas Patra (KVP) and Sukanya Samriddhi Accounts for the girl child are some savings schemes offered by the Department of Posts at post offices across the country. 

However, Pankaj Mathpal, MD, Optima Money Manager, told Zee Business online that post office schemes are not good in current scenario, as there are multiple investment options available for consumers. But, he added that if the investors are eyeing secured long term returns, PPF can be a good option. 

All the post office saving schemes are subject to change in interest rates after each quarter of the financial year. Here are 5 schemes you can invest for income tax benefits -

1. Public Provident Fund (PPF)

A 15 year long-term investment that can be opened with any bank or post office in the country. It gives 8.00 per cent compounded interest p.a and can be started by any individual, with no age barrier. Minimum investment allowed is Rs 500, while maximum can Rs 1.5 lakh during an year. 

The investment up-to Rs 1.5 lakh is eligible for tax deduction under 80-C which makes the scheme highly popular among middle class investors. The scheme can also be extended in a 5 year block after maturity of 15 years. Interest and the maturity proceeds from the investment are completely tax free. Investments can be made in lump sum or in 12 equal installments.

Financial planner, Poonam Rungta believes that PPF is currently one of the best saving schemes for investors. 

"PPF gives almost 8 per cent compounding returns annually, which is better then many Fixed deposit schemes." she added.

2. National Savings Certificate (NSC)

NSC is a 5-year maturity scheme, that offers 8 per cent annually compounded returns. In other words, an investment of Rs 1,000 will become Rs 1,442 on the maturity of 5 years. Deposits to a limit of only Rs 1.5 lakh qualifies for a tax deduction, however, there is no upper limit for an investment in NSC. These are the transferable certificates and can be used to avail bank loans too. Investments can only be done in denominations of Rs.100, Rs. 500, Rs. 1,000, Rs. 5,000 and Rs.10,000. 

Only the reinvested interest on NSC is tax deductible under section 80-C,within a limit of Rs 1.5 lakh. While, interest in the first and final year of the NSC are not tax deductible, as they are not re-invested back to NSC. 

3. Sukanya Samriddhi Yojana

Sukanya Samriddhi is a scheme for the benefit of the girl child introduced by the government. It currently offers an attractive interest rate of 8.5% per annum, compounded annually. The scheme can be opened in the post office or bank, by any Indian parent with a girl child not more than 10 years old. 

The maximum investment eligible for tax deduction in Rs 1.5 lakh. The minimum amount required to invest is Rs 250, with an upper limit of Rs 1.5 lakh per annum. The maturity will be after the girl child attains the age of 21 or 18 (if she is getting married). The tax benefits can be availed by parents or guardians under section 80-C. 

"SSY used to offer 9.5 per cent returns earlier, which is now being reduced to just 8.5 per cent p.a. The post office schemes are good only for long term secured investments", said Mathpal.

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4. Post Office Time Deposit (5 year)

Post office time deposit scheme comes with four options. Investor has a choice of 1 year, 2 year, 3 year and 5 year maturity scheme. The interest rate for each option is different. One year option comes with an annual interest rate of 6.9 per cent, 2 year with 7.0 per cent p.a, 3 year with 7.2 per cent p.a and 5 year has an annual return of 7.8 per cent. 

The investment limit has a range from Rs 200 to no limit. However, only Rs 1.5 lakh can be claimed for a tax deduction in a financial year under section 80-C.From April this year, interest received by senior citizens from deposits is exempt up to Rs 50,000 under Section 80TTB.

5. Post Office Monthly Income Scheme

The MIS accounts offer monthly fixed income to the investors. It offers 7.7 per cent p.a interest, paid monthly to the investor. Minimum limit for the deposit is Rs 1500, whereas the upper limit is Rs 4.5 lakh for single account holders and Rs 9 lakh for joint account holders. The scheme comes with a maturity of 5 years, but with 2 per cent penalty, the depositor can withdraw some liquid after one year before maturity.

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''Cashless India and less returns in post office saving schemes have opened various other options for middle class investors", said Rungta to Zee Business online.

The investor should read all the scheme related documents carefully and opt for the best available in the market after individual's discretion.