The central government has recently announced a significant change to the National Savings Scheme (NSS). From October 1, 2024, interest payments on deposits in the NSS will cease.
Due to this change, depositors have been instructed to withdraw their funds by September 30, 2024, after which no interest will be paid.
Purpose of the NSS Scheme
The NSS was introduced in 1987 and remained open until 1992, offering a secure way for people to invest for their future.
The scheme attracted investors with the benefit of compound interest on deposits and a tax exemption under Section 80C of the Income Tax Act.
This made the NSS a popular investment option for those seeking both security and tax savings.
Why the Interest Payment Stoppage?
The government’s new guidelines, which come with the decision to close the NSS, state that interest payments will stop on October 1, 2024.
Investors who have kept their funds in NSS for the last 37 years are advised to withdraw their entire amount by September 30, 2024, and to update their KYC details.
NSS vs. NSC: Key Differences
The NSS scheme should not be confused with the National Savings Certificate (NSC). While NSS was closed to new investors in 1992, NSC remains active with no changes announced.
NSS offered an interest rate of 7.5% per annum from March 2003 to September 2024. However, NSC investors do not need to worry as their scheme remains unaffected by these changes.
Interest Rates and Withdrawal Rules in NSS
The NSS allowed investors to make annual deposits of up to ₹40,000, which were eligible for tax deductions under Section 80C.
Initially, the interest rate was as high as 11%, though it later dropped to 7.5%. After a lock-in period of 4 years, investors could withdraw their principal and interest amounts.
Future of NSS After October 1, 2024
Depositors will continue to earn 7.5% interest until the end of September 2024. However, after this, any new deposits will not earn interest, and investors will need to consider alternative saving options.
Tax Rules and Withdrawal Impact
The NSS withdrawal is taxed in the year it’s withdrawn. However, if the funds remain in the account, they stay tax-free. In case the account holder passes away, any withdrawal made by their heirs will be completely tax-free.
