7.75% Government of India Bond Vs PMVVY Vs SCSS – Which is the best?

Many retirees are now in a confusing mode of which one to choose among 7.75% Government of India Bond Vs PMVVY Vs SCSS. Which is the best option to select?

7.75% Government of India Bond Vs PMVVY Vs SCSS

Before judging the products, let us first understand the features of 7.75% Government of India Bond, PMVVY and SCSS in detail.

Features of 7.75% Government of India Bond Vs PMVVY Vs SCSS

# Features of 7.75% Government Of India Savings Bonds (Taxable)

Features and Eligibility of 7.75% Government of India Savings Bonds

# HUF and Individual (Single, Jointly, Either or Survivor, or on behalf of minor as a Guardian are allowed to invest in these bonds.

# This bond is not available for NRIs.

# Minimum amount is Rs.1,000 (face value of the bond) and there is no maximum limit for investment.

# The Bonds will be issued, in Demat form and credited to the Bond Ledger Account (BLA) of the investor/s on the date of tender of cash or the date of realization of draft/ cheque.

# Interest will be payable on half yearly basis. There is a cumulative option also available.

# It is a 7 years bond. Premature withdrawal is available only for those whose age is 60 years and above (that also with certain conditions) like-Lock in period for investors in the age bracket of 60 to 70 years shall be 6 years from the date of issue, Lock-in period for investors in the age bracket of 70 to 80 years shall be 5 years from the date of issue, Lock-in period for investors in the age of 80 years and above shall be 4 years from the date of issue.

# Interest income from 7.75% Government of India Savings Bonds will be taxable. However, there is no wealth tax you have to pay. Tax will be deducted at source (TDS) while interest is paid.

Refer a detailed post at “How to buy or invest in 7.75% Government of India Savings Bonds?

Features of Pradhan Mantri Vaya Vandana Yojana (PMVVY)

Let us now discuss about the features and eligibility of Pradhan Mantri Vaya Vandana Yojana (PMVVY) 2020- 2023.

Pradhan Mantri Vaya Vandana Yojana (PMVVY) 2020 - 2023 - Features and Eligibility

Some other features of this product are as below:-

# You can surrender this policy during the policy period under certain exceptional circumstances like pensioner requires money for treatment of any critical/terminal illness of self or spouse. Surrender value payable will be 98% of the purchase price.

# You can avail the loan facility after completion of 3 policy years. The maximum loan payable will be 75% of the purchase price. Interest on the loan will be recovered from the pension amount.

# Pension is payable at the end of each period, during the policy term of 10 years, as per the frequency of monthly/ quarterly/ half-yearly/ yearly as chosen by the pensioner at the time of purchase.

# Pradhan Mantri Vaya Vandana Yojana (PMVVY) scheme does not provide tax deduction benefit under section 80C of the Income Tax Act. Returns from this scheme will be taxed as per existing tax laws.

# There is no TDS on this product.

# During the policy period, the pensioner will receive the monthly, quarterly, half-yearly, or yearly pension as he has opted during the time of buying. On the death of the pensioner during the policy term, the Purchase Price will be refunded to the nominee (or legal heirs in the absence of nominee). If the pensioner survives up to the end of the policy term, Purchase Price and final installment of the pension will be paid to the pensioner.

# You can buy this through LIC (either online or offline).

Read a complete detailed post “Pradhan Mantri Vaya Vandana Yojana (PMVVY) 2020 – 2023 – 5 Changes you must know“.

Features of Senior Citizen Savings Scheme (SCSS)

# Anyone who attained the age of 60 years or above can invest in this product.

# NRIs and HUF are not allowed to invest.

# You can open Senior Citizen Savings Scheme either in the post office or with recognized 24 PSU banks and one private bank.

# Minimum investment is Rs.1,000 and maximum is Rs.15,00,000.

# The current interest rate is 7.4% and will change on quarterly basis.

# Interest will be payable on quarterly basis.

# Premature withdrawal is allowed but with certain conditions. In case the account is closed after the expiry of 1 year but before the expiry of 2 years from the date of opening of the account, an amount 1.5% of the deposit shall be deducted and the balance paid to the depositor. In case the account is closed on or after the expiry of 2 years from the date of opening of the account, an amount equal to 1% of the deposit shall be deducted and balance paid to the depositor.

# Account will not be extended automatically.

# You can extend for a period of 3 years after 5 years maturity period. However, you have to submit Form B within one year from the date of maturity.

# Also, such extended accounts can be closed after one year of extension without any penalty. Means after completion of 6th year, one can withdraw the amount without any penalty.

# Interest rate during such extension period will be as per prevailing rate of interest after 5 years maturity.

# Only one extension is allowed to the old account. Means after 5 years completion of SCSS, you can extend only for once. After that, the account will be matured.

# However, you are free to open one more account during the old account tenure or after maturity of old account subject to the maximum ceiling of Rs.15 lakh.

# Loan is not available.

# One can avail up to Rs.1,50,000 as a maximum benefit under Sec.80C by investing in SCSS scheme.

# Interest Income-Interest income is treated as taxable income. Hence, there is no tax benefits. It will be taxed as per your tax slab. TDS can be deducted on interest earned if it exceeds the minimum limit prescribed by the Government.

Read the complete post about SCSS at “Post Office Senior Citizen Scheme (SCSS)-Benefits and Interest Rate“.

7.75% Government of India Bond Vs PMVVY Vs SCSS – Which is the best?

Now let us understand which is the best among 7.75% Government of India Bond Vs PMVVY Vs SCSS. I will try to compare all these products with respect to the features for your benefit.

# Tenure

7.75% Government of India Bond offers you 7 years. PMVVY is for 10 years and SCSS is for 5 years.

# Minimum and maximum investment

In case of 7.75% Government of India Bond, the minimum investment is Rs.1,000 and there is no maximum limit. However, in case of PMVVY, the minimum investment is Rs.1,56,658 for a yearly pension of Rs.12,000 and maximum investment is Rs.15,00,000. In case of SCSS, the minimum amount is Rs.1,00,000 and the maximum is Rs.15,00,000.

# Interest rates

In the case of 7.75% Government of India bond, the coupon is 7.75%. In the case of PMVVY and SCSS the current interest rates are 7.4%.

# Frequency of interest rate payment

In case of 7.75% Government of India Bond, the interest payment is either on a half-yearly basis or cumulative (at maturity). However, in case of PMVVY it is monthly, quarterly, half-yearly, or yearly. In case of SCSS, it is on a quarterly basis.

# Frequency of change in interest rates

There is big misconception about this. In case of 7.75% Government of India Bond, there will not be any change up to 7 years period.

However, in case of PMVVY, the interest will be revised on yearly basis. For SCSS, it is on quarterly basis.

However, if you invested in PMVVY and SCSS now, then the same interest rate will be applicable for you throughout the end. Even though the interest rate on PMVVY and SCSS change on a yearly and quarterly basis respectively, it is for NEW INVESTORS but not for the existing investors.

# Minimum Age

There is no such mention of minimum age limit. However, in case of PMVVY and SCSS, the minimum age limit is 60 years.

# Liquidity

In case of 7.75% Government of India Bond, Premature encashment in respect of the Bonds shall be allowed for individual investors in the age group of 60 years and above, subject to submission of document relating to date of birth of the investor in support of age to the satisfaction of the issuing bank, after minimum lock in period from the date of issue as indicated below:

Lock in period for investors in the age bracket of 60 to 70 years shall be 6 years from the date of issue.

Lock in period for investors in the age bracket of 70 to 80 years shall be 5 years from the date of issue.

Lock in period for investors in the age of 80 years and above shall be 4 years from the date of issue.

In case of PMVVY, you can surrender this policy during the policy period under certain exceptional circumstances like pensioner requires money for treatment of any critical/terminal illness of self or spouse. Surrender value payable will be 98% of the purchase price.

In case of SCSS, in case the account is closed after the expiry of 1 year but before the expiry of 2 years from the date of opening of the account, an amount 1.5% of the deposit shall be deducted and the balance paid to the depositor. In case the account is closed on or after the expiry of 2 years from the date of opening of the account, an amount equal to 1% of the deposit shall be deducted and balance paid to the depositor.

# Loan facility

In case of 7.75% Government of India Bond, it is not be eligible as collateral for availing loans from banks, financial Institutions and Non-Banking Financial Companies.

In case of PMVVY, you can avail the loan facility after completion of 3 policy years. The maximum loan payable will be 75% of the purchase price. Interest on the loan will be recovered from the pension amount.

In case of SCSS, you are not allowed to avail the loan by pledging it. Because this scheme is meant for regular income from your investment.

# Tax Benefits while investing and the returns

Let us discuss the tax benefits of 7.75% Government of India Bond Vs PMVVY Vs SCSS during investment and the tax treatment of interest income.

Tax Benefits during investment

In the case of 7.75% Government of India Bond and PMVVY, there are no tax benefits. However, in the case of SCSS, you can avail the tax benefits of up to Rs.1,50,000 under Sec.80C by investing in this product.

Tax Benefits on interest income

In 7.75% Government of India Bond, Interest on the Bonds will be taxable under the Income Tax Act, 1961 as applicable according to the relevant tax status of the Bondholders. The Bonds will be exempt from wealth-tax under the Wealth Tax Act, 1957.

In case of PMVVY and SCSS, returns from these scheme will be taxed as per existing tax laws.

# TDS Facility

In case of 7.75% Government of India Bonds, Tax will be deducted at source while making payment of interest on the Non-Cumulative Bonds from time to time and credited to Government Account. Tax on the interest portion of the maturity value will be deducted at source at the time of payment of the maturity proceeds on the Cumulative Bonds and credited to Government Account. However, by submitting the Form 15G/H, you can avoid the TDS.

In case of PMVVY, there is no TDS. But in case of SCSS, TDS can be deducted on interest earned if it exceeds the minimum limit prescribed by the Government.

How to buy?

You can buy 7.75% Government of India Savings Bonds from designated branches of SBI and Associate banks,18 Nationalized banks, 3 Private Sector banks (like HDFC and ICICI Banks) and Stock Holding Corporation of India Ltd.

You can buy PMVVY through LIC (either online or offline). However, in the case of SCSS, you can open the Senior Citizen Savings Scheme either in the post office or with recognized 24 PSU banks and one private bank.

Conclusion:-There is nothing called the best. However, with comparison to 7.75% Government of India Bond Vs PMVVY Vs SCSS, you can easily decide which is the best for your requirement. All three products are SAFE. Hence, choose the products based on your actual requirements.

Refer our latest posts:-

8 Comments

  1. Dear sir, In case of 7.75% Govt bonds ( Cumulative scheme ), do we have pay income tax every year on accrued interest earned ( Like in case of bank fixed deposits of 2 years or more ) OR total income tax for all 7 years lock-in period will be deducted by RBI on maturity ?

    Reply
  2. The process of opening SCSS account is going on and will be opened by May 2020 end. Will the interest rate be fixed at 7.4% throughout the term??

    Reply
  3. Do you mean to say that in both the cases of PMVVY and SCSS, the rate of interest contracted at the time of entry will remain “fixed” throughout the tenure of the Scheme/Account. The current rate of interest is 7.4% and this will remain “fixed” till the maturity of the account. The rate revision, if any, will be applicable only in case of new applications/investments only.
    If this is the case, then, I think 7.75% GoI bonds are the best options with equal benefits and rate of interest and the next best would be SCSS (as it would give additional 80-C benefit also).
    Request your views on this.

    Reply
    • Dear Kamal,
      “Do you mean to say that in both the cases of PMVVY and SCSS, the rate of interest contracted at the time of entry will remain “fixed” throughout the tenure of the Scheme/Account.”-YES.
      In case of 7.75% Govt bonds, liquidity is an issue.

      Reply
  4. Very well analysed article. All my doubts were cleared. Suitable decision can be taken by anyone after reading.
    Thanks Basavraj for another of your excellent posts

    Reply

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