Allow one-time withdrawal from NSS schemes: GCCI

Ahmedabad: The central govt has issued a directive regarding the National Savings Scheme (NSS), mandating that depositors withdraw their funds by Sep 30, with the subsequent cessation of interest payments effective from Oct 1, 2024. Top officials of the department of posts have stated that the directive applies only to those depositors who have NSS 87 and NSS 92 accounts.The Gujarat Chamber of Commerce and Industry (GCCI) has demanded that since the withdrawal is taxable, the govt should allow a one-time withdrawal option until March 31, 2025.
A top official from the department of posts in Ahmedabad said, "The NSS 87 was discontinued from Oct 1,1992, and NSS 92 was discontinued from Nov 1, 2002. Both these schemes do not see new investments, and many accounts are already closed. So the ministry of finance has issued directives to encourage people to withdraw their funds from these schemes and to invest in other schemes."
GCCI has written to the Central Board of Direct Taxes (CBDT) regarding the issue. Jainik Vakil, chairman of the GCCI direct tax committee, said, "This decision has raised significant concerns among long-term depositors who relied on this scheme for their financial security. The NSS, introduced in 1987, provided an attractive investment option with an initial interest rate of 11%, which was subsequently adjusted to 7.5%. Under this scheme, depositors were permitted to invest up to Rs 40,000 annually, enjoying the added benefit of tax deductions under Section 80C of the Income Tax Act, 1961. The scheme's flexibility allowed savers to withdraw both their principal deposits and the accrued interest after a lock-in period of four years, contributing to its popularity among investors. The official regulations stipulate that any amount withdrawn from NSS is subject to taxation in the year of withdrawal. However, if the depositor chooses not to withdraw the funds, the interest earned on those deposits remains tax-free, provided the funds remain in the account."
Moreover, should a depositor's heirs withdraw the funds following the depositor's death, the entire amount is treated as tax-free. This provision has incentivised many account holders to maintain their accounts over the years, he added.
"There are thousands of people who have funds in these schemes, and now with this directive, their withdrawal becomes taxable. In such a scenario, they should be given an option for a one-time withdrawal without tax until March 2025," Vakil said.