Interest rates on small savings for fiscal 2015-16 are unlikely to come down. The Finance Ministry will announce the rates on or before March 31.

Based on the recommendations of the Shyamala Gopinath Committee, the Finance Ministry revises interest rates for small savings on the basis of average yield during previous year on Government Securities (G-Secs) with similar maturity with a spread of 25 basis points.

However, there are three exceptions. The spread on 10-years NSC will be 50 basis points (100 basis points mean 1 per cent), on Sukanya Samriddhi Account 75 basis points, and on Senior Citizens Savings Scheme 100 basis points.

For example, average yield on 1-year Government Security during 2013-14 was 8.5 per cent, while the interest rate on 1 year post office deposit for 2014-15 was 8.4 per cent.

Finance Ministry officials said the average yields on G-Secs during the first 11 months (April-February) being lower than the previous fiscal has made a case for reducing the rate. However, keeping in mind, Government focus on pushing saving, rates are unlikely to go down and at the best they can be kept at the same level, they said.

The Finance Ministry hopes to mop up ₹22,408 crore through small savings in 2015-16.

Tax benefit

Though, this is lower than revised estimate of ₹33,276 crore in 2014-15, it is higher than actual of ₹12,357 crore in 2013-14. Small savings schemes such as NSC, PPF and Sukanya Samridhi Scheme are popular tax saving instruments. One can invest up to ₹1.50 lakh in these instruments together and get income tax benefit.

With the new rates being aligned every year, it was interpreted that rates on small savings will change annually. However, the official clarified that the rates are fixed and not floating as far as individual investments except PPF are concerned. It means that the rate prevailing at the time of investments will remain fixed and unchanged till the maturity of the investment. Any revisions in interest rates in subsequent years will only be applicable to the investments made in the relevant period.

For instance, investment made in an instrument other than PPF on January 1, 2015 will remain valid till the maturity of that instrument, irrespective of revision of interest rate with effect from April 1, 2015. As regards PPF, the interest rate fixed every year will be applicable to all PPF accounts.

Small Savings schemes currently mean Savings Account, Time Deposits (1,2,3 and 5 years) Recurring Deposits and Monthly Account in Post Office, Senior Citizens Savings Scheme, National Savings Certificates i.e. NSC (5 and 10 years) Public Provident Fund (PPF), Kisan Vikas Patra and Sukanya Samriddhi Account.