Small Postal Savings Plans: Knowing which plans are tax-exempt and which are not
Since many small post office savings schemes are used for tax saving purposes, there are misconceptions among investors that post office schemes are tax exempt.
However, it is not necessary that, for a plan that offers tax advantages, the interest or the return is also exempt from tax.
There are very few postal schemes that have both the features and they fall under the EEA category (i.e. tax exemptions on investment, interest/returns and maturity), but none postal schemes only has tax-exempt features.
Since the interest/returns of many postal schemes are not subject to tax deductions at source (TDS), investors often think of them as tax-exempt schemes. However, taxpayers must report interest earned on these plans under Income from Other Sources when filing their income tax returns (ITRs).
Here are the different savings and investment schemes offered by La Poste and their taxation:
Public Provident Fund (PPF)
The PPF has both tax-saving and tax-exempt features and falls under the EEA category. An investor can open an account and invest up to Rs 1.5 lakh in PPF in a financial year and claim deductions on the investment amount u/s 80C of the Income Tax Act. Interest on the PPF and the Maturity Amount are also tax exempt.
Sukanya Samriddhi Yojana (SSY)
A girl’s parents or legal guardian can open a Sukanya Samriddhi Yojana account at a post office and deposit up to Rs 1.5 lakh in one fiscal year and claim u/s 80C deductions on the amount of the investment. Like PPF, with tax-free interest and maturity, SSY also has EEA features.
National Pension System (NPS)
La Poste acts as a POP (point of presence) for NPS service providers. Thus, investors who wish to invest in the NPS can go to a designated postal agency to open an account. Investors can claim deductions of up to Rs 50,000 in a financial year u/s 80CCD(1B) for voluntary investments in NPS Tier-1 accounts.
Returns and lump sum commutations of the retirement corpus under the NPS are tax exempt.
postal savings account
There are no tax benefits on CEP deposits, nor tax-free interest.
However, depositors can obtain tax exemptions on interest earned up to Rs 3,500 in single accounts and up to Rs 7,000 in joint accounts u/s 10(15)(i) Act income tax, except exemptions of Rs 10,000 available u/s 80TTA for persons below 60 years of age and up to Rs 50,000 for elderly persons u/s 80TTB.
Interest received on CEPs is not subject to the TDS and taxpayers must declare the interest received in their ITRs.
Term deposits at the post office
Investors enjoy tax savings of up to Rs 1.5 lakh u/s 80C on investments made in 5-year term deposits at the post office. No tax benefits are available on investments made in the short term.
Interest on term deposits at the post office is not exempt from tax. However, senior investors enjoy exemptions on interest earned up to Rs 50,000 in a u/s 80TTB financial year.
Interest on fixed term deposits at the post office above Rs 40,000 for persons under the age of 60 and above Rs 50,000 for seniors is subject to TDS, if forms 15G/15H are not submitted .
Postal Monthly Revenue Scheme (MIS) Account
There are no tax-saving benefits available on deposits in Post Office MIS accounts, nor is interest earned exempt from tax.
The tax exemptions on interest received are the same as those for Postal Term Deposits.
Seniors Savings Plan (SCSS)
Senior investors enjoy tax benefits of up to Rs 1.5 lakh u/s 80C in a financial year on investments made in Post Office SCSS.
Although interest earned on SCSS is not exempt from tax, investors enjoy exemptions of up to Rs 50,000 on interest earned in a financial year u/s 80TTB.
Interest earned in excess of Rs 50,000 is subject to TDS, if Form 15H is not submitted.
National Savings Certificates (NSC)
By investing in NSC, investors can get tax benefits of up to Rs 1.5 lakh in a u/s 80C financial year.
However, interest earned on NSC is not only taxable, but investors must also report accrued interest under Income from other sources on an annual basis when filing their income tax return (ITR) during the investment period. because TDS is not applicable on NSC. interest.
Although the calculation of accrued interest is a problem, annual returns make the tax payable less than the tax payment on accrued interest in the year of maturity.
Kisan Vikas Patra (KVP)
Investors do not receive tax benefits on investments in KVP, nor is interest earned tax exempt.
The tax expenditure would be greater than NSC, as investors must report accrued interest earned in ITR in the year of maturity, as TDS is not applicable on KVP.