New Tax Rules Lead to Drop in Popular Savings Plans

Popular savings schemes have seen big drops in collections and subscriber numbers. This is especially true among younger people choosing new tax rules. Almost 70% of taxpayers now use the new tax regime. This has reduced money going into government small savings schemes. Schemes like the Public Provident Fund (PPF), Sukanya Samriddhi Account (SSA) and National Savings Certificate are affected the most. An official mentioned that the decline is partly because more people are now investing in stocks instead of these schemes.

While these savings plans offer high interest rates and secure returns, interest rates are reviewed every three months. Only those who choose the old tax regime can get tax benefits of up to Rs.1.5 lakh under section 80C. Official data shows that net deposits under the PPF scheme increased by about 134% from Rs.5,487.43 crore in 2013-14 to Rs.12846 crore in 2021-22. However, the government expects lower collections from small savings schemes for the current financial year. Government sources predict a slight drop of about 8-10% in small savings inflows for FY25.

On a positive note, Senior Citizen Savings Scheme saw its collections nearly triple to Rs.1.12 lakh crore last year. More subscribers joined this scheme. This growth is due to higher interest rates and increased maximum deposit limit. However, no major increases are expected this year.

As for the Mahila Samman Savings Scheme, it is unlikely to continue past March 2025. Because of these changes, the government has set a lower collection target for the National Small Savings Fund (NSSF) in FY25. Union Budget for FY25 presented in July, aims for NSSF collections of Rs.4.2 trillion. This is down from Rs.4.67 trillion in the Interim Budget.