THE ESM CORNER

TOP 12 GOVERNMENT BACKED SAVING SCHEMES EVERY DEFENCE PERSONNEL SHOULD KNOW

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Introduction:
Saving schemes are ways to invest money and get good returns with tax benefits. The Indian government has different savings schemes for various groups, especially seniors, retired individuals, Armed Forces Veterans, and future retirees. While these schemes offer benefits like safe investment, they also have downsides like low-interest rates and a long lock-in period. It’s important to choose a savings scheme that suits your comfort with risk, financial goals, and income. In this article, we’ll explore the features, benefits, and drawbacks of popular savings schemes offered by the Indian government focusing Armed Forces Veterans and those planning to retire.

The Indian government provides various savings schemes for different purposes and people. These schemes, supported by the government, offer attractive interest rates, and tax benefits, and are easily accessible through post offices and banks across the country.

Popular savings schemes:

Fixed Deposits (FD): A savings scheme that allows the investor to deposit a lump sum amount and earn interest on it. The interest rate varies from 3.0% to 7.5% per annum, depending on the bank and the tenure. The interest earned is taxable as per the income slab rates, and there is a TDS of 10% if the interest exceeds Rs. 40,000 in a year. The scheme has a minimum tenure of 7 days and a maximum tenure of 10 years and allows premature withdrawal with a penalty.

Recurring Deposits (RD): A savings scheme that allows the investor to deposit a fixed amount every month and earn interest on it. The interest rate varies from 2.5% to 8.5% per annum, depending on the bank and the tenure. The interest earned is taxable as per the income slab rates, and there is a TDS of 10% if the interest exceeds Rs. 40,000 in a year. The scheme has a minimum tenure of 6 months and a maximum tenure of 10 years and allows premature withdrawal with a penalty.

Senior Citizens Savings Scheme (SCSS): A post office savings scheme that offers an 8.2% interest rate per annum for a tenure of 5 years. The interest earned is taxable, but You can save up to 1.5 lakh rupees from your income tax by investing in certain things under Section 80C of the Income Tax Act. Senior citizens can save up to 50,000 rupees from their income tax on interest income under Section 80TTB of the Income Tax Act.

Public Provident Fund (PPF): A long-term savings scheme that offers a 7.1% interest rate per annum for a tenure of 15 years. The interest earned and the maturity amount are tax-exempt under Section 80C of the Income Tax Act. The scheme also allows partial withdrawal and loan facility after certain years.

Sukanya Samriddhi Yojana (SSY): A savings scheme for the girl child that offers an 8.2% interest rate per annum for a tenure of 21 years or until the girl gets married after 18 years of age. The interest earned and the maturity amount are tax-exempt under Section 80C of the Income Tax Act. The scheme also allows partial withdrawal for the girl’s education or marriage after she turns 18.

National Savings Certificate (NSC): A fixed-income investment scheme that offers a 7.7% interest rate per annum for a tenure of 5 years. You can save up to 1.5 lakh rupees from your income tax by investing in certain things under Section 80C of the Income Tax Act.

Kisan Vikas Patra (KVP): A savings certificate scheme that offers a 7.5% interest rate per annum and doubles the investment amount in 113 months. The interest earned is taxable, but there is no TDS. The scheme has a lock-in period of 2.5 years and allows premature withdrawal with a penalty.

Post Office Monthly Income Scheme (POMIS): A savings scheme that offers a 7.4% interest rate per annum and pays a fixed monthly income to the investor. The interest earned is taxable, but there is no TDS. The scheme has a maturity period of 5 years and allows premature withdrawal with a penalty.

National Pension Scheme (NPS): A voluntary retirement savings scheme that offers variable returns based on the market performance and the asset allocation chosen by the subscriber. The scheme has two tiers: Tier I is mandatory and has a lock-in period until retirement, while Tier II is optional and has no lock-in period. The contribution amount is eligible for deduction under Section 80C and Section 80CCD of the Income Tax Act. The maturity amount is partially taxable and partially tax-exempt.

Pradhan Mantri Vaya Vandana Yojana (PMVVY): A pension scheme for senior citizens that offers a 7.4% interest rate per annum and pays a fixed monthly, quarterly, half-yearly, or yearly pension to the investor. The scheme has a tenure of 10 years and allows premature exit with a penalty. The interest earned is taxable, but there is no TDS. The scheme also provides a death benefit to the nominee. This scheme is provided by LIC.


Sovereign Gold Bond (SGB): A gold investment scheme that offers a 2.5% interest rate per annum and tracks the price of gold. The interest earned is taxable, but there is no TDS. The scheme has a tenure of 8 years and allows premature redemption after 5 years. The capital gains from the redemption are tax-exempt. The scheme also provides a loan facility against the bonds.

Equity Linked Savings Scheme (ELSS): A type of mutual fund that invests at least 80% of its assets in equity and equity-related instruments. The scheme offers an average return of 15% to 18% per annum, depending on the market performance and the fund manager’s strategy. The investment amount is eligible for deduction up to Rs. 1.5 lakh under Section 80C of the Income Tax Act. The scheme has a lock-in period of 3 years and allows partial or full redemption after that. The long-term capital gains from the scheme are taxed at 10%, and the dividends are also taxed at 10%.

Government-backed savings schemes help individuals save money for their future needs or goals with low risk and tax benefits. However, they also have some limitations, such as low liquidity, low-interest rates, and long lock-in periods. Here are some of the pros and cons of these schemes:

Merits:

Government Support: The government support these schemes, making the investment safe and reliable.

Interest Income: The schemes give fixed and sure interest rates on the savings, making the money grow over time.

Different Choices: The schemes are for different kinds of people, such as old people, women, children, farmers, etc. They also have different time periods, minimum and maximum money limits, and money taking facilities to match the likes and needs of the investors

Tax Savings: Some schemes offer tax benefits, lowering the tax payment of the investors. For example, some schemes can save up to Rs. 1.5 lakh from the income tax by investing in certain things under Section 80C of the Income Tax Act, while some schemes do not have to pay tax on the interest income and the final amount.

Savings Habit: The schemes make people save money regularly and for a long time, which can help in reaching financial goals and securing the future.

Demerits:

Hard to Take Money: These schemes have a long time period, which means the money cannot be taken before the end or only with a loss. This can be a problem in case of emergencies or urgent needs.

Low Interest Income: The schemes give a low interest rate compared to other ways of investing money, such as mutual funds, stocks, bonds, etc. This means the money does not grow much over time and may not keep up with inflation.

No Inflation Protection: The schemes are not inflation-protected, which means the real value of the money may go down over time due to rising prices. This can affect the buying power and the quality of life of the investors.

Tax Effect: Some schemes are taxable, which means the interest income and the final amount are added to the income and taxed as per the income tax rates. This can lower the net income from the investment.

Limited Choice: These schemes have a limited choice of spreading and changing the money. The investors cannot choose the money distribution, the money manager, or the market performance of the schemes. The schemes also have a limit on the maximum money amount, which may not be enough for some investors.

Conclusion:

The Indian government provides various savings schemes with secure returns and tax benefits, but these schemes come with some demerits like low liquidity and returns compared to other investments. While government savings schemes offer a reliable path to a comfortable retirement, it’s essential to be aware of their limitations and risks. For Armed Forces Veterans and future retirees, consulting a financial advisor is crucial to tailor their investments to specific needs and preferences, ensuring they make the most of these schemes for a secure and prosperous retirement. I hope you find this information helpful and informative.

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