The surge in investments in women-centric savings schemes, including the Senior Citizen Savings Scheme (SCSS) and the Mahila Samman Savings Scheme, has sparked a re-evaluation of interest rates by the government. These savings instruments have gained momentum due to their tax benefits and attractive returns, prompting the government to factor in post-tax returns for popular schemes such as the Public Provident Fund (PPF). This move aims to harness the potential of women in India's financial landscape.
Women At The Forefront Of Financial Growth
According to a report published by TOI, till the end of September, investments in SCSS surged by 2.6 times, reaching Rs 74,675 crore compared to Rs 28,715 crore the previous year. The Centre's decision to double the annual investment cap to Rs 30 lakh contributed to this substantial growth. Gross investments have now crossed Rs 1 lakh crore. Simultaneously, the Mahila Samman Savings Scheme attracted over Rs 13,500 crore, indicating women's growing participation in financial savings.
Tax-Advantaged Savings Schemes
The Mahila Samman Savings Scheme, designed for women, allows investments up to Rs 2 lakh with an attractive interest rate of 7.5 per cent. Together with SCSS and the Sukanya Samriddhi Yojana, a scheme focusing on the financial well-being of girl children, these instruments have been identified as priority small savings avenues. The government has chosen to calibrate interest rates, factoring in tax benefits for investors.
Re-Evaluating Interest Rates
For instance, the PPF, part of the Rs 1.5 lakh annual deduction under section 80C of the income tax, offers not only tax advantages but also tax-exempt interest earnings. For taxpayers in the 30 per cent bracket, the return on PPF, currently at 7.1 per cent, translates to nearly 9.3 per cent. While the Reserve Bank of India has raised the repo rate by 2.5 percentage points since May 2022, PPF rates have remained unchanged. In contrast, post office time deposits of two and three years have seen a 1.5 percentage point increase in interest rates.
Aligning Small Savings Rates
The formula for setting small savings rates reveals that PPF depositors receive 40 basis points less, and recurring depositors face a 20 basis point shortfall. Conversely, Kisan Vikas Patras offers a higher return of 24 basis points compared to the formula-based yield on government securities with a similar maturity. This strategic move ensures that small savings rates are in alignment with market trends, benefiting savers across the board.