Interest rates on small savings remain unchanged for the January-March quarter

Interest rates on small savings schemes, including the Public Provident Fund and Sukanya Samriddhi Scheme, will remain unchanged for the fifth successive quarter starting January 1, according to a Finance Ministry office memorandum issued on Tuesday 31 Dec ’24. Although no reason was given to keep the rates unchanged, it is believed that this is to ensure that people are not encouraged to park money in small savings rather than bank deposits.

Officials said collections through small saving schemes may be lower than the Budget Estimate for FY25. As more people move into the new tax regime, less money is being put into small savings. The government lowered the estimate for small savings in the interim budget of 2024-25 to ₹4.6 lakh crore from a revised estimate of ₹4.7 lakh crore for 2023-24. Further, it was lowered to ₹4.2 lakh crore in the full budget for FY25 presented in July.

The amount of ₹4.2 lakh crore reflects investments from small saving receipts in special government securities. This also includes the redemption of loans of states which are reinvested. The net receipt to the Centre is pegged at ₹3.8 lakh crore.

Small savings schemes currently in operation are: Post Office Savings Account, National Savings Time Deposits (1, 2, 3 & 5 years), National Savings Recurring Deposits, National Savings Monthly Income Scheme Account, Senior Citizens Savings Scheme, National Savings Certificate, Public Provident Fund, Kisan Vikas Patra and Sukanya Samriddhi Account. These schemes offer assured returns in the range of 4 to 8.2 per cent per annum and enable investors to claim income tax exemption of up to ₹1.5 lakh under section 80C of the Income Tax Act. However, the government introduced a new Income Tax Regime with lower tax rates but with the exemption as an optional one. The old Income Tax Regime continues for people who want to avail themselves of exemption but will be required to pay tax at slightly higher rates. Data shows that more than 70 per cent of Income Tax Return filers opted for the new tax regime during the fiscal year 2023-24. This has impacted small savings.

Meanwhile, a new but short-term small savings scheme, the Mahila Samman Scheme, is gaining traction, with more than ₹30,000 crore deposited during the current fiscal year. The scheme will end on March 31, 2025, as there is no indication of an extension.