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Q. I am a senior citizen. I had invested in the National Savings Scheme (NSS) 1987 when I was in service.
I have not withdrawn money from it as I was planning to do it in instalments to minimise tax implications.
I read in the newspapers that from October 1, 2024 no interest would be paid on NSS. If this was true, please answer the following:
1) Whether the account must be closed in full?
2) Can I continue to hold the account without interest and withdraw the balance amount in instalments with the aim of minimising tax?
3) Is there any time limit for the closure of the account?
A.V. Narayanan
A. As per the gazette notification dated August 29, 2024 issued by the Department of Economic Affairs, Ministry of Finance, “the balances at the credit of the subscribers of the NSS, on or after October, 1, 2024, shall bear no interest at all.”
The gazette notification is applicable for both NSS-1987 and NSS-1992 schemes. That is, interest would not be paid for deposits under both the NSS schemes on or after October 1, 2024.
Regarding closure of the NSS account, the Union Budget 2025 had not outrightly mentioned any date.
However, in the early part of 2024, the Union government issued a directive asking people to withdraw their deposits (under both the NSS schemes) by September 2024.
Investors were also informed that even if they continue to maintain funds, no interest would be paid from October 1, 2024. Against this backdrop, it is ideal to stop maintaining funds in such schemes that offer ‘zero interest.’
Investors (you) can withdraw the accumulated corpus and invest in other financial instruments that pay a reasonable interest.
Now, here comes the problem of taxation. Unlike Public Provident Fund or Employee Provident Fund, NSS does not qualify for the Exempt-Exempt-Exempt (EEE) category.
The EEE category provides triple tax benefits viz.
1) Initial contribution amount (for respective years) could be directly deducted from the total taxable income
2) Interest earned on the investment is tax free and
3) Total amount withdrawn at the time of maturity is tax free.
As NSS does not fall under the EEE category, any amount withdrawn from the NSS is taxable during the year in which it is withdrawn, under the head “Income from other sources.”
But relax, we have a good news. In the Union Budget 2025, Finance Minister Nirmala Sitharaman announced that any withdrawal made from the NSS account (both NSS-1987 and NSS-1992) on or after August 29, 2024, will be fully exempt from tax.
So, rest assured that if you withdraw your money now, you would not be burdened with the tax liability.
In her Budget speech, Ms. Sitharaman said, “It is proposed to provide exemption to the withdrawals made from National Savings Scheme (NSS) on or after the 29th day of August, 2024, for any amount deposited under the scheme and the interest accrued thereon in respect of which a deduction has been allowed.”
Which investment vehicle should be chosen to invest the withdrawn funds purely depends on your risk tolerance and your financial goals – short term, medium term or long term.
However, it would not be a bad idea to invest in an fixed deposit (FD) or a recurring deposit (RDI instead of getting zero interest for invested amount.
Some nationalised banks offer more than 7.25% interest (maybe even a little higher) for senior citizens and the Budget 2025 has also doubled the Tax Deducted at Source (TDS) threshold for senior citizens on interest income from ₹50,000 to ₹1 lakh.
Above all, we would advise you to take the help of a qualified chartered accountant/financial advisor who could help you manage the funds withdrawn in a much more beneficial/professional manner.
(The writer is a NISM & CRISIL-certified wealth manager)
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