Despite Removal of Tax Benefits, Investors Continue to Flock to Small Savings Schemes

Even though the new tax regime has removed exemptions on investments, public confidence in small savings schemes remains strong. Schemes like PPF (Public Provident Fund) and Sukanya Samriddhi Yojana are witnessing inflows exceeding budget estimates, providing significant relief to the central government. Higher collections in these schemes reduce the government’s need to borrow from the market to meet its financial requirements.

Small Savings Schemes See Robust Participation

New Delhi: Despite the absence of tax benefits under the new system, people continue to invest heavily in small savings schemes. According to sources, as of 10 January, the National Small Savings Fund (NSSF) had received ₹2.17 lakh crore in deposits, accounting for nearly two-thirds of the budgeted target for the current financial year.

According to reports, higher-than-expected inflows into schemes like PPF and Sukanya Samriddhi Yojana have eased the government’s financing pressures. For FY 2025-26, the government aims to mobilize ₹3.43 lakh crore through the NSSF, compared to ₹4.12 lakh crore in the previous fiscal year (2024-25). The government’s objective is to reduce the fiscal deficit to 4.4% of GDP (₹15.69 lakh crore) in 2025-26, down from 4.8% last year.

The New Tax Regime

The previous budget had offered higher exemptions to make the new tax system attractive. However, under the current regime, small savings schemes do not provide any tax benefits. Earlier, under Section 80C, investments up to ₹1.5 lakh per year were eligible for tax deductions. Officials state that around 75% of taxpayers have already shifted to the new tax system.

Despite this, small savings schemes continue to attract substantial investments, primarily because their interest rates remain more attractive than bank deposits. Over the past year, the Reserve Bank of India (RBI) has reduced interest rates by 1.25%, making small savings schemes comparatively lucrative.