All of the post office small savings schemes including term deposit, NSC, SCSS or senior citizens savings schemes and also for that matter ULIP or unit linked insurance product come with a minimum holding period or a lock-in term. And investments or contribution in these investment avenues also qualifies for tax deduction under Section 80 C up to a maximum limit of Rs. 1.5 lakh in a fiscal year.
But this benefit of tax deduction under Section 80C for these schemes may have to be given up in an instance when you prematurely withdraw from these schemes. Here's detailed more on it.
Say in the case of SCSS, where the maturity term is of 5 years which can be further extended for a period of 3 years, investor in SCSS may lose out on the 80C benefit if he or she withdraws
prematurely, but the benefit is not withdrawn on retrospective basis for the year of the deposit. Rather the withdrawn principal amount together with the interest paid out in the withdrawal year shall be added to the investor's gross total income in the year when the premature withdrawal was made.
So, herein we give up on the income tax deduction claimed u/s 80C by paying tax on the income that was claimed for deduction earlier.
The same happens in case investments like ULIP, post office time deposit are not held for the minimum holding period. For life insurance minimum holding period is 2 years, while for ULIP, SCSS and post office time deposit it is 5 years.