Financial Inclusion in India and Its Challenges

In news: Small Savings Schemes


From UPSC perspective, the following things are important :

Prelims level: Small Savings Schemes

Mains level: NA

The Central government raised interest rates on eight of the 12 small savings schemes by 20 to 110 basis points for the January to March 2023 quarter.

Small Savings Schemes

  • Small Savings Schemes are a set of savings instruments managed by the central government with an aim to encourage citizens to save regularly irrespective of their age.
  • They are popular as they provide returns higher than bank fixed deposits, sovereign guarantee and tax benefits.

How are they managed?

  • Since 2016, the Finance Ministry has been reviewing the interest rates on small savings schemes on a quarterly basis.
  • All deposits received under various schemes are pooled in the National Small Savings Fund.
  • The money in the fund is used by the Centre to finance its fiscal deficit.

What are the different saving schemes?

The schemes can be grouped under three heads –

  1. Post office deposits
  2. Savings certificates and
  3. Social security schemes

(1) Post Office Deposits

  • Under this we have the savings deposit, recurring deposit and time deposits with 1, 2, 3 and 5 year maturities and the monthly income account.
  • The savings account currently pays an interest of 4% per annum and can be opened individually or jointly with an initial investment of Rs 500.
  • The recurring deposit that pays 5.8% a year compounded quarterly matures after 60 months from the date of opening.
  • It allows investors to save on a monthly basis with a minimum deposit of Rs 100 per month.
  • Investments under the 5-year time deposit up to Rs 1.5 lakh further qualifies for benefit under section 80C of Income Tax Act.

(2) Savings Certificates

  • Under this, we have the National Savings Certificate and the Kisan Vikas Patra.
  • The National Savings Certificate pays interest at a rate of 6.8% per annum upon maturity after 5 years. The interest that is earned is reinvested into the scheme every year automatically.
  • The NSC also qualifies for tax saving under Section 80C of the income tax act.
  • The Kisan Vikas Patra, which is open to everyone, doubles your one-time investment at the end of 124 months signifying a return of 6.9% compounded annually.
  • The minimum investment amount is Rs 1000 while there is no upper limit.

(3) Social security schemes

  • In the third head of social security schemes, there is Public Provident Fund, Sukanya Samriddhi Account and Senior Citizens Savings Scheme.
  1. Public Provident Fund
  • The Public Provident Fund is a popular saving option for long term goals like retirement.
  • It pays 7.1% a year and qualifies for tax benefit under Section 80C of the Income Tax Act.
  • Upon maturity of the account after 15 years, it can be extended indefinitely in blocks of 5 years.
  • The accumulated amount and interest earned are exempt from tax at the time of withdrawal.
  1. Sukanya Samriddhi Account
  • The Sukanya Samriddhi Account was launched in 2015 under the Beti Bachao Beti Padhao campaign exclusively for a girl child.
  • The account can be opened in the name of a girl child below the age of 10 years.
  • The scheme guarantees a return of 7.6% per annum and is eligible for tax benefit under Section 80C of the Income Tax Act.
  • The tenure of the deposit is 21 years from the date of opening of the account and a maximum of Rs 1.5 lakh can be invested in a year.
  1. Senior Citizen Savings Account
  • And finally, the 5-year ​​Senior Citizen Savings Account can be opened by anyone who is over 60 years to age.
  • It carries an interest of 7.4% per annum payable quarterly and qualifies for Section 80C tax benefit.
  • These time-tested and safe modes of investments don’t offer quick returns, but are safer when compared to market-linked schemes.


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