PPF, NSC, SCSS Interest: Which Is Tax-Free in 2026?

Quick Answer: For October to December 2026, small savings rates are unchanged: PPF 7.1%, Sukanya 8.2%, SCSS 8.2% and NSC 7.7%. Only PPF and Sukanya interest is fully tax-free in both regimes. NSC, SCSS, time deposit, monthly income and KVP interest is taxable at your slab rate, though deposits may qualify for a Section 123 deduction in the old regime.

The rates first: nothing changed for the tenth quarter in a row

The Finance Ministry's notification of 30 September 2026 kept every small savings rate unchanged for the third quarter of FY 2026-27, from 1 October to 31 December 2026 — the tenth straight quarterly review without a change, with the last revision in the fourth quarter of FY 2023-24. The full list is: - Post office savings account: 4.0% - One-year time deposit: 6.9%; two-year: 7.0%; three-year: 7.1%; five-year: 7.5% - Five-year recurring deposit: 6.7% - Post office monthly income scheme: 7.4% - Senior Citizens Savings Scheme (SCSS): 8.2% - National Savings Certificate (NSC): 7.7% - Kisan Vikas Patra (KVP): 7.5%, maturing in 115 months - Public Provident Fund (PPF): 7.1% - Sukanya Samriddhi Account (SSY): 8.2% One distinction matters for planning. PPF and Sukanya rates are reviewed every quarter and apply to the existing balance as well, so a future cut would lower what money already in the account earns. NSC, SCSS, time deposit and monthly income scheme rates are generally fixed at deposit for the full term — an SCSS deposit made this quarter keeps earning 8.2% for five years even if a later review changes the rate for new deposits.

The tax question, scheme by scheme

Headline rates mislead when tax is ignored. A scheme paying 8.2% whose interest is fully taxed is not automatically better than one paying 7.1% tax-free. The treatment of each major scheme follows. PPF: fully tax-free (EEE) PPF enjoys exempt-exempt-exempt status. The deposit qualifies for a deduction under Section 123 (the successor to old Section 80C) up to ₹1.5 lakh, but only in the old regime. Interest and maturity are tax-free in both regimes — the key point for new-regime taxpayers, since losing the deduction does not make PPF interest taxable. PPF runs 15 years, accepts ₹500 to ₹1.5 lakh a year, and interest is calculated on the lowest balance between the 5th and the end of each month, credited on 31 March. Sukanya Samriddhi (SSY): fully tax-free (EEE) Sukanya Samriddhi mirrors PPF on tax: deposits up to ₹1.5 lakh a year qualify under Section 123 in the old regime, and interest and maturity are tax-free. It pays the joint-highest rate at 8.2%, but it is available only for a girl child, with deposits of ₹250 to ₹1.5 lakh a year, maturing after 21 years. Eligibility, not the rate, is the constraint. NSC: deduction yes, interest taxed (with a twist) NSC pays 7.7% for five years, with a minimum deposit of ₹1,000 and no maximum. Deposits qualify under Section 123 in the old regime, within the ₹1.5 lakh limit. The interest is taxed, but with a well-known twist: interest in years one to four is treated as reinvested, so it can itself qualify for the Section 123 deduction in those years, within the limit. Interest in the fifth and final year is fully taxable as income from other sources, because there is no reinvestment left to claim. Readers who hold NSC should therefore not assume the whole maturity amount is tax-free, and should report the interest each year rather than only at maturity. SCSS: highest rate for seniors, interest fully taxable SCSS pays 8.2% for five years, extendable by three years, with deposits from ₹1,000 up to ₹30 lakh per individual. It is open to those aged 60 and above, and to certain retirees aged 55 to 60 (and retired defence personnel from age 50, excluding civilian staff), subject to the scheme's conditions. The deposit qualifies under Section 123 in the old regime, but the quarterly interest is fully taxable at the depositor's slab rate every year, and only the principal comes back tax-free. Senior citizens in the old regime may also be able to use the deduction of up to ₹50,000 on interest income from banks, post offices and co-operative banks — readers should confirm the current section reference under the Income-tax Act, 2025 with a tax professional, since section numbers changed with the new Act. If tax is deducted at source and total income is below the taxable limit, a no-TDS declaration can be submitted where the conditions are met; check the current threshold and form with the bank or post office. Post office time deposits, monthly income scheme and KVP: taxed, with different deduction positions - Five-year post office time deposit (7.5%): deposit qualifies under Section 123 in the old regime; interest is taxed annually at the slab rate. - Monthly income scheme (7.4%): no Section 123 deduction; monthly interest is fully taxable at the slab rate. Limits are ₹9 lakh for a single account and ₹15 lakh for a joint account. - Kisan Vikas Patra (7.5%, 115 months): no Section 123 deduction; interest is taxed annually on an accrual basis, so there is no tax-free lump at the end. - Post office savings account (4.0%): interest up to ₹10,000 a year may qualify for the savings-interest deduction in the old regime.

Worked examples: what tax does to the headline rate

Take ₹1,00,000 of interest in a year: at a 20% slab, tax plus 4% cess is ₹20,800, leaving ₹79,200; at 30%, tax plus cess is ₹31,200, leaving ₹68,800. All figures below are illustrations at the stated rates, before any deduction benefit; actual tax depends on total income, regime and other deductions. - PPF: ₹1.5 lakh deposited at the start of each year for 15 years at 7.1% grows to about ₹40,68,209, of which deposits are ₹22,50,000 and interest about ₹18,18,209 — all of it tax-free at maturity. - NSC: ₹1,00,000 invested for five years at 7.7%, compounded annually, matures at about ₹1,44,903, of which interest is about ₹44,903 — taxable as described above, with years one to four eligible for the reinvestment deduction within the Section 123 limit. - SCSS: ₹10,00,000 deposited earns ₹82,000 a year at 8.2%, paid quarterly; ₹30,00,000 earns ₹2,46,000 a year. At a 20% slab plus cess, the tax on ₹2,46,000 of interest is about ₹51,168, leaving about ₹1,94,832 — still a strong income, but materially below the headline 8.2%.

The comparison that surprises most readers is PPF against SCSS. SCSS pays 1.1 percentage points more, but its interest is taxed annually while PPF's compounds tax-free for 15 years. For a taxpayer in the 30% slab, SCSS's post-tax rate is about 5.7%, against PPF's 7.1% tax-free. That does not make SCSS a poor choice — it pays regular quarterly income, which PPF does not — but the two rates should never be compared without tax.

Old regime versus new regime: where the deduction lives

Every deduction in this article — Section 123 up to ₹1.5 lakh, and the senior-citizen interest deduction — is available only in the old regime. Under the new regime, which is the default, none of these deposits gives a deduction. What survives in the new regime is the tax-free character of PPF and Sukanya interest and maturity, because that exemption belongs to the instrument, not to a deduction claim. Under the new regime, a rebate can also make taxable income up to ₹12 lakh effectively tax-free, subject to its conditions — which is why some senior citizens with only SCSS interest may owe no tax even though the interest itself is taxable in principle. The right question is therefore not "which scheme pays most" but "which scheme, after my regime, slab and need for income versus growth, leaves most in my hands".

Five mistakes readers make with small savings tax

- Treating NSC maturity as tax-free. Only the reinvestment treatment in years one to four softens the bill; the final year's interest is taxable. - Assuming SCSS at 8.2% beats PPF at 7.1% for everyone. After slab tax, the order can reverse, and SCSS pays income while PPF locks money away for 15 years. - Claiming Section 123 deductions in the new regime. Deductions in this article are old-regime only. - Forgetting to report NSC and KVP interest every year. Both are taxed on accrual, not only at maturity. - Assuming current rates continue. PPF and Sukanya rates change quarterly; only fixed-term deposits lock their rate. The January–March 2027 review could change the picture again. This article is for educational purposes only and is not financial advice. Please consult a SEBI-registered investment adviser for personalized guidance. Investments are subject to market risk. Sources: Finance Ministry notification via PTI in ThePrint (30 Sep 2026); Department of Economic Affairs office memorandum dated 30 Sep 2026 (rates for 1 Oct–31 Dec 2026); Jagran Josh, "Small Savings Scheme Rates From October 1" (1 Oct 2026); The Economic Times, "Not all post office schemes save tax"; SR Wealth retirement schemes guide; Money n Wealth SCSS guide; PPF/NSC maturity figures recomputed for this article and cross-checked against published worked examples.