Budget 2025: Will small savings schemes see a big change in next month's Budget presentation?

The Union Budget 2025 will be presented on February 1 this year. Experts anticipate that the forthcoming Union Budget for 2025-26 will have implications on popular small savings schemes such as the Public Provident Fund (PPF), National Savings Certificate (NSC), and Sukanya Samriddhi Yojana (SSY). Potential alterations in tax policies and interest rates are believed to be the driving factors behind these projected impacts.

For small-scale investors, the significance of these schemes goes beyond mere financial returns. The tax advantages and government backing of these instruments make them essential tools for fostering long-term wealth accumulation. 

In the latest update in December, the Central government decided to keep the interest rates for various small savings schemes unchanged for the fourth consecutive quarter, covering the period of January to March. This indicates that the rates will remain consistent throughout the final quarter of FY2025, following the trend seen in the last four quarters.

Expectations from Budget 2025

According to experts, due to increasing inflation and changing economic priorities, numerous potential investors are now examining alternative avenues that offer higher returns without the limitations of conventional savings schemes.

“We anticipate a revision in the rates of schemes like PPF and NSC. Further, We expect the government to provide relief to the middle class by modifying the tax slabs,” said Shravan Shetty, Managing Director, Primus Partners.

“We have got small savings schemes like PPF, NSC, and Sukanya Samriddhi Yojana -- let’s keep those interest rates nice and steady. A solid 7.1 per cent for PPF, 7.7 per cent for NSC, and 8.2 per cent for Sukanya Samriddhi would be like a cozy blanket of stability for savers, while keeping the fiscal balance in check,” said Himani Mishra, managing director and chief executive of Brand Radiator.

Collections through small saving schemes

Last year, a senior Finance Ministry official said collections from small saving schemes last year may have fallen short of the Budget Estimate, despite a strong performance in the final two months of the fiscal year. This decrease in collections can be attributed to the growing number of individuals transitioning to the new tax system, resulting in less investment in small savings. 

Interestingly, the government revised the estimate for small savings in the interim budget for 2024-25 to Rs 4.6 lakh crore from the revised estimate of Rs 4.7 lakh crore for 2023-24. This figure was further lowered to Rs 4.2 lakh crore in the full budget for FY25, which was presented in July.

The amount of Rs 4.2 lakh crore represents investments made from small saving receipts in special government securities, including the redemption of state loans that are reinvested. The net receipt to the Centre stood at Rs 3.8 lakh crore.

Based on official data up to 2022, net deposits in the PPF scheme experienced a significant increase, rising by approximately 134% from Rs 5,487.43 crore in 2013-14 to Rs 12,846 crore in 2021-22. Despite this growth, the government anticipates lower collections in small savings for the current fiscal year.

Projections from government sources suggest a minor decrease in small savings inflows for FY25, estimated at around 8-10%.

Conversely, the Senior Citizen Savings Scheme witnessed a substantial rise in collections, nearly tripling to Rs 1.12 lakh crore in the previous financial year, alongside a growth in the number of subscribers.

Small savings scheme and New Tax Regime

The current small savings schemes available include the Post Office Savings Account, National Savings Time Deposits (1, 2, 3 & 5 years), National Savings Recurring Deposits, National Savings Monthly Income Scheme Account, Senior Citizens Savings Scheme, National Savings Certificate, Public Provident Fund, Kisan Vikas Patra, and Sukanya Samriddhi Account. These schemes provide guaranteed returns ranging from 4 to 8.2 percent per year and offer investors the opportunity to claim income tax exemption of up to Rs 1.5 lakh under section 80C of the Income Tax Act.

Recently, the government introduced a new Income Tax Regime offering lower tax rates with the exemption being optional. The previous Income Tax Regime remains in place for those who wish to avail of the exemption but will be subject to slightly higher tax rates. Statistics indicate that over 70 percent of Income Tax Return filers chose the new tax regime in the fiscal year 2023-24, which has had an impact on small savings.

Latest interest rates

According to the latest official announcement in December, interest rates for the fourth quarter of FY 2024-25 will mirror those from the previous quarter, spanning from October 1, 2024, to December 31, 2024. The interest rate for the popular Public Provident Fund (PPF) scheme stands at 7.1% for the January-March period. Similarly, the Sukanya Samriddhi Yojana, which aims to support the welfare of the girl child, will offer an interest rate of 8.2%. Furthermore, the Senior Citizen Savings Scheme, a highly sought-after option, will maintain an annual interest rate of 8.2%.