Post Office Savings Schemes

Post Office Savings Schemes – Types & Benefits

India Post is the largest nationalised postal chain in the country. It also offers many investment avenues for investors, commonly known as post office saving schemes. These schemes were launched to offer investment opportunities to investors and inculcate savings discipline in citizens across different economic classes. Every post office branch provides these savings schemes to allow individuals to apply and invest easily.

What are the Types of Post Office Savings Schemes Available?

At present, the government through the post office provides 9 different saving schemes for investment. Here are the details:

Public Provident Fund (PPF)

PPF is one of the most preferred saving schemes and comes with a lock-in period of 15 years. Investors can make a partial withdrawal from PPF after the completion of 5 years of investment. This scheme requires a minimum deposit of Rs. 500 per year to ensure that the account remains active. Here are the salient features of this scheme:

• PPF is a long-term investment that has a lock-in period of 15 years. The ongoing interest rate on PPF is 7.1% per annum (compounded yearly).
• This scheme does not have any minimum or maximum age limit for account opening.
• Investments can be made with a minimum amount of Rs. 500 and a maximum of Rs. 1.5 lakhs is allowed in a financial year. Investors can invest in a lump sum or 12 equal instalments spread across the year.
• An account can only be opened under a single owner.
• Investment can be done in the name of a minor without exceeding the maximum limit of investment.
• PPF allows the maturity period to be extended by 5 more years after the completion of the 15 years. Investors can continue extending the maturity indefinitely in blocks of five years.
• PPF is a long-term investment plan that has a premature closure facility after the completion of 5 years from the time of account opening. It can be done only for financing serious ailments or higher education. Partial withdrawal is permitted after the completion of 5 years calculated from the end of the year in which the account was opened.
• Investors can use the loan facility from the 3rd financial year up to the 6th year of account opening.
• PPF investment also qualifies for tax deduction under Section 80C of The Income Tax Act. This investment form offers tax-efficient returns since the interest is fully tax-free. PPF interest must be reported in the investor’s income tax return.

National Savings Certificate (NSC)

NSC or National Savings Certificate requires a small deposit amount of Rs. 100 by a single individual to begin the investment. It can also be opened jointly or by an individual as a guardian of a minor. The lock-in period for NSC is 5 years. The annual interest is re-invested and paid out in bulk at the time of maturity.

• NSC has a maturity period of 5 years. 
• The rate of interest to be earned from this investment is 6.8% per annum and is compounded half-yearly. It is payable only at maturity. Thus, an investment of Rs. 100,000 can fetch Rs. 1,38,949 after completion of 5 years.
• There is no maximum limit on NSC investment. The minimum amount of investment of Rs.100. Investments can be made in denominations of Rs.100, Rs. 500, Rs. 1,000, Rs. 5,000 and Rs.10,000.
• The NSC Certificate can be purchased through single holding or on behalf of a minor.
• NSC investment is tax-deductible under Section 80C of The Income Tax Act. Interest earned on NSC is reinvested under Section 80 C and is, therefore, tax-deductible.
• NSC certificates are also eligible to be pledged as security while availing of bank loans.
• NSC Certificates are transferable from one person to another only once during the entire investment tenure.
• NSC is a risk-free and tax-efficient saving scheme. It is ideal for long-term investment and suitable for traditional investors who have no risk appetite.

Post Office Monthly Income Scheme 

This monthly savings scheme is a reliable savings instrument that allows a maximum investment of Rs. 4.5 Lakhs by an individual investor. A maximum of Rs. 9 Lakhs can be invested in this scheme jointly. The scheme is designed to allow investors to generate a steady monthly income. Here are the key features:

• The scheme offers guaranteed fixed monthly income on a lump sum investment
• Any resident individual is allowed to open an MIS account under single ownership or joint holding pattern. A minor can also invest in this scheme. Minors above 10 years are permitted to operate the account.
• The minimum limit for investment in MIS is Rs. 1,500
• The ongoing MIS interest rate is 6.6% per annum. The interest is payable monthly and the investment tenure is 5 years. For example, Mr Rahul invests Rs. 2,00,000 in Post Office Monthly Income Scheme. He then receives Rs. 1,068 per month as interest for 5 years. The original deposit amount is returned to the investor on completion of the investment tenure. The monthly interest amount can be further invested back in post office recurring deposits.
• Investors are allowed to hold multiple accounts with a maximum investment of Rs. 4.5 lakhs by combining all balances across various accounts. Joint accounts have equal shares across holders. For instance, Mr Rahul from the above example can open a joint account with his wife for a maximum amount of Rs. 2.5 lakh.
• The scheme offers liquidity since it allows investors to withdraw the original deposit amount after the completion of 1 year. However, a penalty of 2% is applicable on the deposit if it is withdrawn between 1-3 years. 1% penalty is applicable on withdrawals after 3 years.
• These accounts are transferable from one post office branch to another in India.
• This scheme is not designed for major tax benefits to investors. Monthly interest earnings form part of total taxable income. No TDS is applicable on the interest payout and deposits are also exempt from wealth tax. The scheme is ideal for risk-averse investors who prefer to have a regular monthly income.

Sukanya Samriddhi Account

Parents or legal guardians of a girl child up to 10 years of age are eligible to invest in this scheme. An account must be opened in the child’s name. A maximum of 2 accounts is permitted per household for two daughters individually. Once the child attains 21 years of age, she is eligible to receive the maturity amount. Some of the main features of this scheme are:

• Sukanya Samriddhi is a scheme meant to benefit the girl child. It currently has an interest rate of 7.6% per annum and is compounded annually.
• The minimum investment amount is Rs.1000 and the maximum is Rs.1,50,000 in a financial year. An investor must deposit the minimum amount every year for 15 years from the account opening date. The account continues to earn interest till maturity.
• Sukanya Samridhhi Account investments are tax-deductible under Section 80 C up to Rs 1.5 lakh per year. The interest earned on the Sukanya Samriddhi Account is also tax-free and the same goes for the maturity amount.
• Investment in this account matures after completion of 21 years from the date of account opening or upon the marriage of the girl child after she reaches 18 years of age. The account must be closed if the girl child becomes an NRI or gives up her Indian citizenship.
• Sukanya Samriddhi account can only be opened in the name of a girl child by her parents or legal guardians. The girl’s age must be 10 years or less as of the date of account opening.
• Multiple accounts are not permitted to be opened in the name of a single girl child. A parent/guardian is allowed to open a maximum of two accounts in the name of two different girl children.
• A penalty of Rs.50 is applicable in case the minimum amount is not deposited in a financial year.
• Premature closure is permitted once a girl child attains majority or 18 years of age. This is allowed only for marriage or higher education.
• The investor or girl child can also avail partial withdrawal facility (not exceeding 50% of the balance) after attainment of 18 years of age.
• Parents/guardian get tax benefit on the invested amount under Section 80C of The Income Tax Act. Maturity proceeds are only paid to the girl child and are entirely tax-free.
• The scheme is very popular in rural India. It acts as financial security for the next generation of women.

Senior Citizen Savings Scheme

Investors who have attained 60 years of age, or are 55 years old in case of voluntary retirement, can deposit a maximum of Rs. 15 lakhs in a Senior Citizen Savings Scheme. The investment can be made throughout their lifetime to earn regular interest income. The plan has a lock-in period of 5 years.

Post Office Savings Account

Investors can open a savings account at a post office just like in banks. They can do so by depositing a minimum of Rs. 20. The account must be maintained with a minimum of Rs. 50 as balance. India Post allows investors to transfer money from post office savings account online. Here are the key features:

• This account is similar to a savings account with a bank.
• Only one account is permitted with one post office and the account can be transferred from one post office branch to another.
• An investor can also open an account in the name of a minor. 
• The interest rate applicable is 4% and is fully taxable. No TDS is applicable on the same.
• If opting for a non-cheque facility, the minimum balance has to be Rs.50/-.
• A deduction of Rs 10,000 can be availed on the total savings account interest including post office savings interest under Section 80TTA of the Income Tax Act, 1961.

5-Year Post Office Recurring Deposit Account

Investors can open multiple RD accounts with a post office by depositing small amounts in each. These investment options require periodic deposits to establish a substantial corpus over the investment tenure. Some of the features of this investment form are:

• Post office RD is a monthly investment for a fixed period of 5 years.
• An interest rate of 5.8% can be earned per annum (compounded quarterly).
• After the fixed tenure of five years is complete an RD account with Rs. 10,000 deposited every month can fetch Rs. 3,256.48.
• Post office RD helps a small investor to invest as little as Rs.10 per month. Any amount can be deposited in multiples of Rs. 5 and there is no upper limit.
• Joint accounts can also be opened by two adult individuals. An account can also be opened in the name of a minor. An individual can open multiple accounts too.
• RD account can be transferred from one post office branch to another.
• A default fee of 5 paise is applicable for every Rs. 5 in case one misses the monthly investment.
• A partial withdrawal is allowed up to 50% of the balance after the completion of one year.
• No TDS is applicable on interest earned from post office RD. Income is taxable in the hands of investor depending on the individual tax slab.

It’s ideal for investors who are looking for risk-free investment opportunities to keep aside savings every month in a systematic manner.

Post Office Time Deposit Account

An investor can open time deposits under the post office saving scheme for 1, 2, 3 and 5 years of tenure. Even minors above 10 years of age are permitted to invest in time deposits if applying through a parent or guardian. This option is similar to Fixed deposit accounts under post office savings schemes.

Kisan Vikas Patra (KVP)

KVP certificates can earn the double value of the deposit amount in 9 years and 10 months. This deposit can be enchased after completing 2.5 years by paying a nominal penalty. Some of the main features are:

• KVP interest rate is 6.9% compounded annually. This scheme can be purchased from any post office across India.
• The invested amount doubles after completion of every 124 months (10 years and 4 months).
• Investment can be made in denominations of Rs.1,000, Rs. 5,000, Rs.10,000 and Rs. 50,000. A minimum investment of Rs. 1,000 is required and there is no maximum limit for investment.
• Certificates can be easily transferred and endorsed to a third person.
• The certificate is liquid since it offers an encashment facility after the completion of 2.5 years of investment.
• No tax deduction is applicable on the principal amount. The interest earned on the KVP is taxable. This scheme is ideal for new and small investors who are from remote areas and do not have access to other financial products.

Interest Rate and Taxability on Different Post Office Savings Schemes

What are the Benefits of Post Office Savings Schemes?

The saving schemes of India Post have some common features and benefits. Here are some benefits that investors should know:

Risk-free 

All post office savings schemes are government-backed. Therefore, these are considered risk-free investment options for investors who wish to park some funds aside for later use.

Attractive returns

The Ministry of Finance may update the interest rates on all the post office saving schemes every 3 months. The interest rate updates could range between 4-9%, thereby allowing investors to gain substantial returns.

Simple investment procedure

These have minimal documentation and simple application procedures. The post offices allow easy enrolment on any of the saving schemes.

Long term investments

Post office saving schemes are mostly ideal for long term investments as these can run up to 15 years. This allows investors to accumulate sizeable wealth over time. Hence, these can be effective investment plans for financial security and fetching retirement benefits.

Ideal for all kinds of investors

Postal investments attract investors from every walk of life and different economic backgrounds. With 1.55 lakh post office branches spread across rural and urban India, every citizen can avail of these investment schemes.

Tax benefits

Tax efficiency is one of the main features of post office saving schemes. Few of the schemes such as National Saving Certificates offer tax exemptions on deposit amount under Section 80C. Some other schemes like Kisan Vikas Patra offer tax deductions on the interest earnings.

Variety of products

Indian post saving schemes are spread across different savings and investment products for various types of investors. Savings deposit, recurring deposit, fixed deposit, monthly scheme, saving certificates, etc, are some of the products offered. Investors can invest in any of these options as per their financial goals.

Who can Invest in Post Office Saving Schemes?

Investors who want to invest in a no-risk investment and fetch substantial returns can opt for these postal schemes. Saving options like National Savings Certificates, Sukanya Samriddhi Accounts, and PPF offer attractive interest rates and zero financial risks. The minimum investment amount is also low and affordable. Thus, investors from different economic classes can invest in these schemes.

FAQs