The central government recently announced an important change to the National Savings Scheme (NSS).
Starting from October 1, 2024, no interest will be paid on deposits in the NSS. To avoid losing interest earnings, depositors are instructed to withdraw their funds by September 30, 2024.
Purpose and Background of the NSS
The NSS was launched in 1987 and remained open to new investors until 1992. It was designed as a secure investment option for individuals looking to save for the future.
The scheme offered the advantage of compound interest on deposits and tax deductions under Section 80C of the Income Tax Act, making it a popular choice for those interested in secure, tax-saving investments.
Reason Behind the Cessation of Interest Payments
The government’s latest guidelines mandate that interest payments on NSS deposits will end on October 1, 2024, as part of the process to close the scheme.
Depositors who have held their funds in the NSS for up to 37 years should withdraw their entire balance by September 30, 2024, and ensure their KYC details are updated.
Differences Between NSS and NSC
It is essential to distinguish the NSS from the National Savings Certificate (NSC).
Although NSS was closed to new investors in 1992, NSC remains active with no changes affecting its terms.
NSS offered an interest rate of 7.5% per annum between March 2003 and September 2024.
NSC investors, however, do not need to worry about these recent changes, as the NSC scheme continues without modifications.
Key Details on Interest Rates and Withdrawals in NSS
The NSS allowed annual deposits of up to ₹40,000, eligible for tax deductions under Section 80C. Initially, the scheme offered an interest rate of 11%, which was later reduced to 7.5%.
After a mandatory lock-in period of four years, investors could withdraw both the principal and interest amounts.
What Happens to NSS After October 1, 2024?
Until September 30, 2024, depositors will continue to earn interest at the 7.5% rate.
After this date, however, any remaining deposits in NSS will no longer earn interest, encouraging investors to explore alternative saving options.
Tax Rules and Impact of Withdrawals
Withdrawals from NSS accounts are taxed in the year they are made. However, as long as the funds remain in the account, they are tax-free.
In the unfortunate event of an account holder’s death, any withdrawal made by their heirs will be entirely tax-free.
