Like other small savings scheme, the interest income accruing from the deposits under the Special Deposit Scheme is exempt from income tax
Special Deposit Scheme (SDS) was launched by the Central government on July 1, 1975. However, no fresh deposits were allowed under the scheme from March 1997.
The purpose of the scheme was to provide better returns to non-government provident funds, superannuation and gratuity funds, surplus funds of the Life Insurance Corporation (LIC) and Employees' State Insurance Corporation, etc.
The organisations which invested in SDS were Employees' Provident Fund Organisation (EPFO), General Provident Fund (Central Services), Contributory Provident Fund (India), All India Services Provident Fund, State Railway Provident Fund and General Provident Fund (Defence Services).
Besides, Indian Ordnance Department Provident Fund, Indian Ordnance Factories Workmen's Provident Fund, Indian Naval Dockyard Workmen's Provident Fund, Defence Services Officers Provident Fund, and Defence Services Officers Provident Fund also invested in SDS.
On maturity, the amount under the scheme is payable in five equated yearly installments from the date of maturity. The scheme is operated through various public sector banks (PSU banks) and the Reserve Bank of India (RBI) offices.
Rate of interest offered
When the scheme was launched, the rate of interest offered was 10% per annum. At present the rate of interest is 8.7% per annum. The rate of interest is effective from 01 April 2013,
Like other small savings scheme, the interest income accruing from the deposits under the scheme is exempt from income tax.
Investment limits in SDS
The minimum investment prescription under the scheme for non-government PFs etc was initially fixed at a maximum of 20% of the net accretions. This was raised to 70% in January 1993.
Thereafter, it was reduced to 55% in May 1994, 30% in May 1995 and 20% in September 1996. And from March 1997, no fresh deposits are allowed under the scheme. However, the interest received on the deposits can be reinvested.