The Government of India has recently announced a hike in interest rates for some of its small savings schemes effective for the January-March 2024 quarter. This decision impacts schemes like the Sukanya Samriddhi Scheme and the 3-year Time Deposit (TD), marking a slight adjustment in their interest rates.
According to the latest notification from the Union finance ministry, the Sukanya Samriddhi Scheme will now offer an interest rate of 8.2%, while the 3-year TD will yield 7.1% during this quarter. This marks a marginal increase from the previous rates of 8.0% and 7.1% for the respective schemes.
Notably, most of the small savings schemes have maintained their interest rates unchanged for over three years, with the last modification occurring in April-June 2020, when the Public Provident Fund (PPF) rate was reduced to 7.1% from 7.9%.
Before this latest revision, interest rates for small savings schemes ranged from 4% for savings deposits to 8.2% for the Senior Citizens Savings Scheme. The recent adjustments are part of the routine revisions carried out by the government based on market trends, specifically the yields of 10-year government securities.
These small savings schemes serve as essential tools for tax-saving purposes, allowing individuals to claim deductions of up to Rs 1.5 lakh annually from their taxable income under Section 80C of the Income Tax Act. Instruments like the PPF, SCSS, NSC, SSY, and the 5-Year Post Office Time Deposit Scheme fall under this tax-saving provision.
The adjustment in interest rates for these schemes follows recommendations from a committee led by former RBI Governor Shyamala Gopinath. The committee proposed that these rates should remain slightly higher, ranging from 25 to 100 basis points, compared to government bond yields of similar maturity.
The government has previously emphasized that the prevailing interest rates on these Small Savings Schemes are more competitive compared to fixed deposit schemes offered by both public and private banks, encouraging individuals to utilize these savings avenues for their financial planning.