The central government issued a directive concerning the National Savings Scheme (NSS) earlier this year. The directive asked depositors to withdraw their funds by September 30. It was also conveyed that interest payments would cease starting on October 1, 2024.
Depositors who had invested in the National Savings Scheme (NSS) more than 37 years ago intending to secure their financial future and future generations were advised to withdraw all their funds by September 30, 2024.
Investors in the NSS were requested to update their KYC (Know Your Customer) information. Despite the discontinuation of the NSS in 2002, many depositors still held active accounts in the scheme. Depositors were personally notified at post offices that failure to withdraw their deposits by September 30 would result in the cessation of further interest payments on their funds.
The notification, titled “National Savings Scheme (Amendment) Rules, 2024” stated:
> Current Rate: For the period starting March 1, 2003, up to September 30, 2024, the interest rate remains at 7.5% per annum. This interest rate will continue to be applicable under the new rules.
> Calculation Method: Interest will be calculated monthly based on the lowest balance in the account between the 10th day of the month and the end of the month. This ensures that account holders are credited interest on their lowest balance over the specified period.
> Credit Timing: The interest earned will be credited to the account at the end of each year, providing an annual boost to the account balance.
Interest Rate for the Period from October 1, 2024
> New Provision: Starting from October 1, 2024, there will be a significant change—the balances in National Savings Scheme accounts will no longer earn any interest.
> Impact: This means that from this date forward, account holders will not receive any interest on their NSS balances. This change could have major implications for savers who rely on this scheme for their investment growth.
Implications for Account Holders
Pre-October 2024 Accounts: If you have contributed to your NSS account before October 1, 2024, you will continue to earn interest at 7.5% per annum until the end of September 2024. Be sure to monitor your balances and understand how interest accrues during this period.
Post-October 2024 Accounts: For any new deposits or accounts opened after October 1, 2024, please note that no interest will be provided. This information may influence your decision on whether to continue investing in the NSS or explore other savings and investment options that offer potentially higher returns.
Planning for the Future: With the cessation of interest from October 2024, it is advisable to reassess your current savings approach. Consider exploring alternative investment opportunities that may offer more favorable terms and better align with your financial objectives.
History of the NSS
The National Savings Scheme (NSS) was initially established in 1987 and operated until 1992 before being temporarily reopened in the same year. However, it was ultimately discontinued in 2002. Despite its closure, the government continued to honor interest payments on existing deposits.
During the course of the scheme, numerous depositors chose to withdraw their investments, closing their accounts and declaring the sums as part of their taxable income. In contrast, some depositors opted to leave their funds untouched in active accounts that are still in operation today.
Under the NSS, depositors had the opportunity to invest up to ₹40,000 annually, with the invested amount being eligible for tax deduction under Section 80C of the Income Tax Act, 1961. After a lock-in period of four years, depositors were allowed to withdraw both their principal deposit and the accrued interest.
Initially, the NSS presented an attractive interest rate of 11%, which gradually decreased to 7.5% over time.
Tax implications and recent changes
The official rules state that funds withdrawn from the NSS are subject to taxation in the year they are withdrawn. However, if the depositor chooses not to withdraw the funds, the interest earned will remain tax-free as long as it remains in the account. In the event that a depositor passes away and their heirs withdraw the funds, the entire amount will be considered tax-free. This provision has allowed many account holders to maintain their accounts for extended periods.
As of July 12, changes have been implemented in the scheme. Account holders who opened their accounts under the 1987 scheme continued to earn interest at the prevailing rate. For accounts opened after this date, interest was calculated at the post office savings rate of 6% with an additional 200 basis points on the balance.
The reduction of the NSS interest rate to zero in October has had significant implications, especially for seniors who relied on this scheme for financial security. This unexpected change has raised tax concerns, disrupted financial planning, and undermined trust in government-backed savings.
