To revitalise small savings, finance minister Arun Jaitley proposed certain measures which would revive the interest of risk-averse investors to put money in post offices. Jaitley raised the investment limit of Public Provident Fund (PPF) to R1.5 lakh per annum from R1 lakh, proposed to reintroduce the once-popular Kisan Vikas Patra (KVP) and also announced a special small saving tool to cater to the requirement of education and marriage of the girl child. Also, a National Savings Certificate (NSC) with an insurance cover will be launched to provide additional benefits to small savers.
For individuals, PPF is the most preferred investment option as it is backed by the government, is tax-exempt at all stages, and currently gives a return of 8.7% per annum, compounded yearly. A resident Indian can open a PPF account, and the subscriber can even open another account in the name of minors, but the maximum investment limit will be R1.5 lakh by adding balance in all accounts. Deposits made under PPF qualify for deduction from income under Section 80C of I-T Act, where the ceiling has now been proposed to rise to R1.5 lakh from R1 lakh per year. The PPF account matures after 15 years and can be renewed every 5 years thereafter.
Non-residents cannot open a new account, but can continue their existing accounts till its maturity, without extensions. While premature closure of account is not allowed, one can withdraw money every year from seventh financial year from the year of opening the account. One can avail loan against PPF from the third financial year and the money invested in PPF cannot be attached under any court order. One can deposit in lump-sum or can even make 12 transactions a year and the minimum investment amount is R500 per year. If one fails to make a deposit in any given year, a penalty of R50 for each year of default and the minimum amount of R500 will have to be paid.
In small savings, NSC of 5 and 10 years maturities are one of the most preferred investments options. NSCs offered by the post office are government-guaranteed and is a tax savings option for the investor. The interest is compounded and is returned along with the principal amount on maturity. The minimum amount that can be invested in NSCs is R100 and one can buy certificates in denominations of R500, R1,000, R5,000 and R10,000.