Small savings schemes of the post office are used for savings purposes. There are some misconceptions among investors that post office schemes are tax free. However, it is not necessary that for the scheme providing tax saving benefits, the interest or return received on it will also be tax free.
There are very few post office schemes that have both the features and they come under EEE category (ie investment, interest/return and tax exemption on maturity), but none of the post office schemes have only tax-free features. There is no Tax Deduction at Source (TDS) on interest/returns on many post office schemes. In such a situation, investors often think that these are tax-free schemes. However, taxpayers have to provide information from other sources, such as interest earned on schemes, while filing their Income Tax Return (ITR).
Post Office Schemes
Public Provident Fund (PPF)
PPF has both tax-saving and tax-free features and comes under EEE category. The interest and maturity amount received on PPF is also tax free.
Sukanya Samridhi Yojana (SSY)
A parent or legal guardian of a girl child can open a Sukanya Samriddhi Yojana account at the post office and deposit up to Rs 1.5 lakh in a financial year. Like PPF, with tax-free interest and maturity, SSY also has EEE features.
National Pension System (NPS)
Investors can claim deduction up to Rs 50,000 in a financial year under section 80CCD(1B) for voluntary investment in NPS Tier-1 accounts. Returns and lump sum commutation from retirement corpus under NPS are tax-free.
Post office savings account
Deposits in post office savings accounts neither have tax saving benefits nor are interest tax free.
Post office time deposit
Investors get tax saving benefit of up to Rs 1.5 lakh under section 80C on investments made in 5 years Post Office Time Deposit. There is no tax-saving benefit available on short-term investments. Interest is also not free.
Post Office Monthly Income Scheme Account (MIS)
Neither any tax-saving benefit is available on deposits in Post Office MIS accounts, nor the interest earned is tax free.
Senior Citizen Savings Scheme (SCSS)
Senior citizen investors get tax-benefits of up to Rs 1.5 lakh under section 80C in a financial year on investments made in Post Office SCSS.
National Savings Certificate (NCS)
By investing in NCS, investors can get tax-benefits of up to Rs 1.5 lakh in a financial year under section 80C. However, the interest earned on NCS will be taxed.
Kisan Vikas Patra (KVP)
Investors cannot enjoy any tax-benefits on investment in KVP and neither the interest earned is tax free.
