Not All Post Office Saving Schemes Are Tax-Free: Know Which Investments Attract TDS

By Siddhi Jain | Oct 1, 2025, 11:39 IST

Post office saving schemes have long been considered reliable investment options for Indian households. They are often favored by small investors, retirees, and families looking for safe returns with minimal risk. Many people also invest in these schemes with the assumption that they come with tax-saving benefits. However, not all post office schemes are tax-free, and in fact, some of them are subject to Tax Deducted at Source (TDS).

In this article, we explain what TDS is, when it applies, and which post office schemes do not qualify for tax exemptions under Section 80C of the Income Tax Act, 1961.

What is TDS?

Tax Deducted at Source (TDS) is a method by which the government collects tax directly from the source of income. Whether it is salary, rent, consultancy fees, or interest earned on deposits, a fixed portion of the amount is deducted before it reaches the individual. This deducted tax is then deposited with the government.

TDS ensures smoother tax collection and also helps reduce the chances of tax evasion.

When Does TDS Apply on Post Office Schemes?

The deduction of TDS depends on the total interest earned during a financial year:

For general citizens, if the interest income from post office deposits exceeds ₹50,000 annually, TDS will be deducted.
For senior citizens, this threshold is ₹1 lakh per year.

If the interest income is below these limits, no TDS is applicable.

Post Office Schemes Where TDS Applies or Tax Benefits Are Limited

While post office offers both long-term and short-term investment products, not all of them come with tax exemptions. Here is a breakdown:

1. Recurring Deposit (RD)

Interest earned from RD is taxable.
If annual interest crosses ₹50,000 (for non-senior citizens), TDS will be deducted.
Below the threshold, no TDS applies.

2. Mahila Samman Saving Certificate

This two-year scheme allows investments up to ₹2 lakh.
It offers 7.5% annual interest, which is attractive for women investors.
However, the interest earned is not tax-free, and no exemption under Section 80C is available.

3. Senior Citizen Savings Scheme (SCSS)

SCSS is one of the most popular retirement saving options, offering 8.2% interest per year.
If annual interest exceeds ₹1 lakh, TDS is deducted.
Principal investment of up to ₹1.5 lakh qualifies for tax benefit under Section 80C, but the interest portion is taxable.

4. National Savings Certificate (NSC)

NSC is different from other schemes because TDS is not deducted on interest.
However, interest earned is taxable and must be declared in income tax returns.
Investments up to ₹1.5 lakh are eligible for Section 80C tax benefit.

5. Monthly Income Scheme (MIS)

This is a five-year scheme where investors receive fixed monthly interest payouts.
It is extremely popular among retirees and those seeking stable cash flow.
No tax exemption is available under Section 80C, and the interest earned is fully taxable.

Key Takeaways for Investors

Not all post office saving schemes are designed for tax-free returns.
While some options like NSC and SCSS provide limited tax benefits under Section 80C, others such as RD, Mahila Samman Saving Certificate, and MIS do not qualify for exemptions.
Investors must carefully evaluate whether their interest income crosses the threshold for TDS deduction.
Even if TDS is not deducted, the interest earned is still taxable and should be reported in annual income tax returns.

Conclusion

Post office saving schemes remain safe and trusted investment avenues, especially for those seeking assured returns. However, investors should not assume that all these schemes are tax-free. By understanding which products attract TDS and which offer tax benefits, one can plan investments more effectively and avoid surprises during tax filing.

For anyone relying on post office schemes, it is advisable to check the tax implications alongside the interest rate benefits before making long-term commitments.