Can PPF and SCSS Survive Without Tax Benefits?

With the announcement of Budget 2020, there are a lot of discussions happening about the new tax regime and the tax benefits that are discontinued. The budget stated that those who choose the new tax regime must give up on most of the deductions and exemptions that can be otherwise availed.

Many people think that the small savings schemes will lose their charm because of the new tax regime. There are mixed opinions about the original provision turning out for small savings schemes without the tax benefits.

The real perks of small savings schemes, such as Public Provident Fund (PPF), National Savings Certificate (NSC), Sukanya Samriddhi Yojana (SSY), and others, are that they come with a government guarantee and tax benefits under Section 80C of the Income Tax Act. These perks make them an automatic choice for most investors. The tax deductions on these schemes resulted in an automatic boost among investors based on their income tax slabs.

Also Read: Tax Query: PPF account can be extended further in blocks of 5 years

When considering the Senior Citizen Savings Scheme (SCSS) and Sukany Samriddhi Yojana (SSY) without tax benefits, you must understand that they give higher returns than other similar schemes in terms of tenure and risk profile. These schemes will not lose its charm among those investors who are looking for a reasonable income during retirement as well as those who are accumulating corpus for their girl child’s future.

PPF can be considered a favourite for those who look for a long-term compounding benefit scheme. So far, the investment made, the interest earned, and the maturity corpus from PPF have been exempt from taxes. The popularity of the scheme is expected to remain unchanged as it is the best fixed-income product for risk-averse investors irrespective of the tax benefit it gives.

In contrast, products such as the National Savings Scheme may become less attractive without tax benefits. Investors who would choose NSC for short-term needs may now go for other available options. One such option is the savings bonds offered by the government and rated at 7.75%. They give marginally higher returns with the same sovereign guarantee. The only glitch here is that the bonds have a tenure of seven years as compared to the tenure of NSC of five years.

For any clarifications/feedback on the topic, please contact the writer at apoorva.n@cleartax.in