Post office saving schemes are investments offered by India Post/Department of Posts (DoP)—a postal system operated by the government. These investments are known for their attractive interest rates and tax benefits. But what sets them apart from most other investments is the sovereign guarantee that they have. Meaning, Post Office Savings avenues are backed by the government, which makes them safe avenues.
Let us look at the various Post Office Savings schemes available for you to invest.
The article covers:
1. Post Office Savings Account (POSA)
Similar to a savings account offered by a bank, each individual can have only one POSA with one post office. However, this account can be transferred from one branch of the post office to the other. Post Office Savings Account offers an interest of 4%, which is fully taxable but it doesn’t attract TDS. However, you can claim a tax deduction of Rs 10,000 annually on interest earned from all your savings accounts combined including this under Section 80TTA.
The initial deposit required to open a Post Office Savings Account is Rs 20. Thereafter, you are required to maintain a minimum balance of Rs 50 for an account with a non-cheque facility and Rs 500 for an account with a cheque facility. You can also open POSA in the name of a minor. Recently, the government introduced the internet banking facility for POSA, making it convenient for investors to operate the savings account.
2. Senior Citizen Savings Scheme (SCSS)
As the name suggests, SCSS is a post office savings avenue specially designed for citizens aged 60 yrs. Nonetheless, those opting for voluntary retirement after the age of 55 can also open an account within a month of receiving their retirement benefits. Note that the investment amount, in this case, shouldn’t exceed the retirement corpus you receive therefrom. Talking about the benefits, SCSS offers a regular interest income to the investor, which is paid on a quarterly basis. This arrangement makes it quite convenient for senior citizens to meet their expenses in their sunset years. The current interest rate on an SCSS account is 7.4% pa.
An SCSS account can be opened individually or jointly with your spouse. While the maximum amount you can invest in this scheme is Rs 15 lakh, the investment should be in multiples of Rs 1,000. Talking about tax benefits, SCSS offers a deduction under Section 80C subject to the overall limit of Rs 1.5 lakh. However, interest income exceeding Rs 10,000 a year is subject to TDS. Although SCSS has a lock-in period of 5 yrs, it is liquid. The scheme allows you to make premature withdrawals of the principal on the completion of a year but only on paying a penalty of 1.5% after completion of a year and 1% after 2 yrs. If you wish to continue enjoying the benefits of SCSS after maturity, you can extend it for 3 more years.
3. Sukanya Samriddhi Yojana (SSY)
This Post Office Savings Scheme is specially designed for the welfare of girl children. The account can be opened by a girl child’s parents or legal guardians any time before she turns 10. SSY’s exempt-exempt-exempt (EEE) tax status makes the scheme extremely attractive. EEE means principal, interest, and maturity proceeds of the scheme are all exempt. The prevailing interest rate is 7.6%pa.
One girl child can have only one account registered under her name and parents can have a maximum of two SSY accounts in the name of 2 girl children. The maturity proceeds of SSY are paid to the girl child after the completion of 21 yrs. While the minimum investment for SSY is Rs 1,000, the maximum limit is Rs 1.5 lakh per year. In case you fail to pay the minimum deposit in a financial year, you’ll be liable to pay a penalty.
4. Post Office Monthly Income Scheme (POMIS)
This scheme offers a guaranteed fixed monthly income on a lump sum investment, making it a suitable avenue for risk-averse investors. POMIS can be opened only by a resident individual and they can do so individually or jointly. A minor can also invest in this post office savings avenue and if they are aged over 10 yrs, they can even operate their account. While the minimum investment is Rs 1,500, the maximum is Rs 4.5 lakh for a single account. In case of a joint account, the maximum limit is Rs 9 lakh. As the name suggests, POMIS pays a monthly interest for a maturity period of 5 yrs. On the completion of the tenor, you receive the principal amount.
While there’s no restriction on the number of POMIS accounts you can have, the combined maximum investment allowed is Rs 4.5 lakh. You can also make a premature withdrawal after the completion of a year, subject to a penalty, which is 2% on deposit if you withdraw between the 1st yr and the 3rd yr and 1% on withdrawals after 3 yrs. You can transfer a POMIS account from one post office to another. While interest received is taxable, it doesn’t attract TDS. Further, deposits are exempt from wealth tax. Although the interest rate is revised quarterly, your account will earn interest at the rate applicable to the quarter of your investment. The current interest rate is 6.6% pa payable monthly.
5. Post Office Time Deposit (POTD)
This post office savings scheme is similar to a fixed deposit offered by a bank. Although the Post Office Term Deposits are available in 4 tenors—1 yr, 2 yrs, 3 yrs, and 5 yrs—only the one with 5 yr term offers tax benefits under Section 80C. The interest rate on this FD is revised quarterly but your scheme will earn interest at the rate applicable to the quarter of your investment. Currently, the account earns interest of 5.5% for the 1st, 2nd, and 3rd yrs and 6.7% for the 4th yr.
While the minimum investment is Rs 200, there is no maximum limit. You can hold any number of POTD accounts singly, jointly, and in the name of a minor. The FD account can be transferred from one branch of the post office to another. On maturity, your account automatically renews for the same tenor and earns interest at the rate prevailing on the date of maturity. POTD can also be opened by a minor.
6. Kisan Vikas Patra (KVP)
This is a certificate that doubles your investment every 10 yrs and 4 mth. Denominations accepted are Rs 1,000, Rs 5,000, Rs 10,000 and Rs 50,000. While the minimum investment is Rs 1,000, there is no maximum limit. A KVP certificate is transferable and can also be endorsed to a third person. It is relatively liquid as you can encash it after 2.5 yrs of investment. However, KVP is entirely taxable.
7. Post Office Recurring Deposits (RD)
This post office savings avenue works like a regular recurring deposit offered by a bank. A Post Office RD requires you to invest a fixed monthly amount throughout the tenor of 5 yrs. While there’s no limit on the number of RD accounts you want to open, RD charges a default fee of Rs 0.05 for every Rs 5 of the deposit. The minimum monthly deposit is as low as Rs 10 but it should be in multiples of Rs 5. Also, there is no maximum limit for the investment. In case you fail to make a monthly investment, you attract a default fee of 5 paise for every Rs 5.
Your account will be discontinued after 4 continuous defaults but can be revived within 2 mth. After the maturity of the RD account, you can extend it for 5 more years. Although the interest rate is revised quarterly, you will earn interest at the rate applicable to the quarter of your investment. RD allows you to make a partial withdrawal of up to 50% of the account balance after a year. The scheme doesn’t attract TDS on interest. However, the interest income is taxable as per the applicable tax slab. The RD account is transferable from one post office branch to another.
8. Public Provident Fund (PPF)
Backed by the government, a PPF is an excellent avenue that scores high on many fronts. One, it enjoys a EEE tax status. Two, the minimum investment amount required to keep the account active is just Rs 500 per yr (maximum is Rs 1.5 lakh). Three, you can avail a loan against a PPF from the 3rd yr.
Liquidity-wise, PPF has a lock-in period of 15 yrs but partial withdrawal is allowed from the 7th yr onwards. The best thing about a PPF account is that it cannot be attached in lieu of liability and a court order or decree. The interest rate on a PPF account is revised quarterly and is applicable for the relevant 3 three months. Currently, it is 7.1%.
9. 5-year NSC-VIII Issue
NSC or National Savings Certificates has a lock-in period of 5 yrs. You can invest in NSC jointly, singly, or on behalf of a minor. Unlike most other savings schemes, the interest on NSC is not paid but reinvested. The prevailing interest rate is 6.8% pa. Earnings earned are eligible for a tax deduction under Section 80C (except for the 5th yr).
Now that you are familiar with the above-mentioned Post Office Savings Schemes, evaluate the best one as per your liking and give your hard-earned money a chance to grow.