A Safe Investment: Post Office Savings Schemes

The Indian Post Office offers a range of investment options with varying levels of risk, return, and tax benefits. These schemes are backed by the government, making them a safe and reliable option for investors. The most popular schemes include the Public Provident Fund (PPF), National Savings Certificate (NSC), Senior Citizen Savings Scheme (SCSS), and Sukanya Samriddhi Yojana (SSY). Each scheme has different eligibility criteria, interest rates, and tax implications, catering to diverse financial needs. The application process is straightforward, requiring minimal documentation, and can be initiated by visiting the nearest post office branch.

Post Office Savings Account

A Post Office savings account is similar to a savings account with a bank, except that it is held with a post office. It acts as a normal savings account in any bank and the account is transferable from one post office to another.

Only one account can be opened with one post office and can be transferred from one post office to another. You can also open an account in the name of a minor. The Post Office savings account interest rate is 4% and is fully taxable. However, no TDS is deducted on the same. Under the non-cheque facility, the minimum balance required to be maintained is Rs. 50/-. However, a deduction of Rs. 10,000 per annum is available on your total savings account interest, including post office savings interest under Section 80TTA of the Income Tax Act, 1961.

To apply for a Post Office savings account, you can follow these steps:

• Visit the closest post office branch.
• Get the form to open the relevant account from the post office. Alternatively, you can download the form online from the official portal of the Indian Post Office.
• Fill in the form with the required details and submit it along with the KYC proof. You will also have to give other documents as required.
• Finish the enrolment process by depositing the amount of the scheme you chose.

Post Office Monthly Income Scheme Account (MIS)

The Post Office Monthly Income Scheme (POMIS) is a government-backed, low-risk monthly interest scheme that generates a steady income. It is highly reliable as it is under the purview of the Finance Ministry.

Features and Benefits

• Capital protection: Your money is safe until maturity as this is a government-backed scheme.
• Tenure: The lock-in period for Post Office MIS is 5 years. You can withdraw the invested amount when the scheme matures or reinvest it.
• Low-risk investment: As a fixed-income scheme, the money you invest is not subject to market risks and is quite safe.
• Affordable deposit amount: You can start with a nominal initial investment of Rs.1,000. As per your affordability, you can invest in multiples of this amount. Keep note that the maximum limit on POMIS is Rs 9 lakhs and for jointly Rs 15 lakhs.
• Guaranteed returns: You earn income in the form of interest every month. The returns are not inflation-beating but are higher compared to other fixed-income investments like FD.
• Tax-efficiency: Your investment is not covered under Section 80C; TDS is not applicable either.
• Payout: You will receive the payout one month after making the first investment, not at the beginning of every month.
• Multiple Account Ownership: You can open more than one account in your name. But the total deposit amount cannot exceed Rs. 9 lakhs in all of them together.
• Joint account: You can open a joint account with 2 or 3 people. In this case, an aggregate sum of up to Rs.15 lakhs can be invested in this account.
• Fund movement: The investor can move the funds to a recurring deposit (RD) account, which is a feature the Post Office has added recently. It is initiated to earn more interest and returns.
• Nominee: The investor can nominate a beneficiary (a family member) so that they can claim the benefits and corpus if the investor passes away during the account’s term.
• Ease of money/interest transaction: You may collect the monthly interest directly from the post office or get it transferred automatically to your savings account. Reinvesting the interest in a SIP is also a lucrative option.
• Reinvestment: You may reinvest the corpus post-maturity in the same scheme for another block of 5 years to continue earning benefits.

Eligibility Criteria

Only a resident Indian can open a POMIS account. NRIs cannot enjoy the benefits of this scheme. Any adult can open a POMIS account. You can open an account on behalf of a minor who is aged 10 years and above. They can avail the fund when they become 18 years old. A minor, after attaining majority, has to apply for conversion of the account in his name.

Early Withdrawal

If you wish to withdraw your investment corpus before the lapse of the lock-in period, a penalty is charged on the withdrawal amount, depending on the time of such redemption. Here are the penalty regulations applicable to MIS premature closure:

• Before the completion of one year = Zero benefits
• Between 1st and 3rd year = The entire deposit is refunded with a 2% penalty.
• Between 3rd and 5th year = The entire corpus is refunded with a 1% penalty.

Post Office Time Deposit Account (TD)

The Post Office Time Deposit Account (POTD), also known as the National Savings Time Deposit Account, is one of the most well-known investment schemes offered by India Post. The scheme is open to all individuals but is particularly popular in rural and remote areas with limited access to investment products.

The POTD offers a range of tenure options for investors, including 1, 2, 3, and 5-year deposits. The minimum deposit amount is Rs. 1,000, and subsequent investments can be made in multiples of Rs. 100. There is no maximum limit on the amount that can be invested, and investors can hold multiple accounts. The interest rate for the POTD is set by the government at the start of each financial quarter and remains constant for the duration of the deposit. As of April-June 2018, the interest rates were 6.6%, 6.7%, 6.9%, and 7.4% for 1-, 2-, 3-, and 5-year tenures, respectively.

One of the key advantages of the POTD is that it provides a guaranteed return on investment. Additionally, 5-year time deposits qualify for tax deductions under Section 80C of the Income Tax Act. The account can be held and operated by a single individual or jointly by up to three adults. Minors aged 10 years and above can also operate the account themselves. The account also offers a nomination facility.

The POTD is quite flexible in terms of investment and transfers. Investors can choose to redirect their annual interest into a post office savings account or a 5-year recurring deposit account. The time deposit account can be easily transferred between post offices, and the duration of the account can be extended upon maturity.

Premature withdrawal of funds is permitted from the POTD after a minimum of 6 months from the date of the first deposit. However, if the withdrawal is made between 6 months and 1 year, simple interest is payable per the Post Office Savings Account interest rate. If the withdrawal occurs after 1 year, the applicable interest rate is 2% lower than the original TD interest rate.

Overall, the Post Office Time Deposit Account is a safe and flexible investment option, particularly for those seeking alternatives to bank fixed deposits and wanting guaranteed returns with the highest safety of their principal investment.

Post Office Recurring Deposit Account (RD)

The Post Office Recurring Deposit Account (RD) is a monthly investment for a fixed period of 5 years with an interest rate of 6.7% per annum (compounded quarterly). The interest rates are revised periodically, with the most recent update in January 2024.

The minimum deposit amount is Rs.100 per month, with no upper limit, and deposits can be made in any amount in multiples of Rs.10. The account can be opened by an adult or jointly by two adults, and there is also an option to open an account in the name of a minor. Joint accounts will have equal shares from all holders. The first deposit should be made when the account is opened, with subsequent monthly deposits to be made before a specified date, depending on the date the account was opened. Deposits can be made in cash or by cheque.

There is a default fee of Re.1 for every Rs.100 in case of a missed monthly deposit. A maximum of four defaults are permitted, after which the account will be discontinued. Discontinued accounts can be revived within two months of the fourth default by paying the missed deposit amount and the default fee.

The Post Office RD provides incentives for advance deposits, offering rebates of Rs.10 for every Rs.100 and Rs.40 for every Rs.100. Additionally, a loan facility is available, allowing individuals to borrow up to 50% of the balance credit after depositing 12 instalments and maintaining the account for one year.

The RD can be extended for another five years, resulting in a maximum tenure of 10 years. The account can also be transferred from one post office to another.

Senior Citizen Savings Scheme (SCSS)

The Senior Citizen Savings Scheme (SCSS) is a government-backed retirement benefits programme for senior citizens in India. The scheme offers a regular stream of income with the highest safety and tax-saving benefits. It is a Post Office savings scheme, and senior citizens can open an SCSS account at a Post Office branch or an authorised bank. The current interest rate applicable to SCSS is 8.2% per annum. This interest rate is applicable from 1st April 2024 until 31st March 2025, and interest will be paid on a quarterly basis.

Eligibility

The following individuals can open an SCSS account with a post office or bank:

• Individuals above 60 years.
• Retired civilian employees above 55 years and below 60 years, provided the investment is made within one month of receiving retirement benefits.
• Retired defence employees above 50 years and below 60 years, provided the investment is made within one month of receiving retirement benefits.

Non-Resident Indians (NRIs) and Hindu Undivided Families (HUFs) are not eligible to open an SCSS account.

Minimum and Maximum Deposit Amounts

The minimum deposit is Rs.1,000 and the maximum is Rs.30 lakh. The deposits can be made in multiples of Rs.1,000. The maturity period of SCSS is 5 years, however, individuals can extend the maturity period for 3 more years by submitting an application in the last year.

Withdrawals and Account Closure

Individuals can withdraw the amount and close the account at any time on an application in Form-2, subject to the following conditions:

• Closed before one year - interest paid in the account shall be recovered from the principal amount.
• Closed after one year but before two years - an amount equal to 1.5% will be deducted from the principal amount as a penalty.
• Closed after 2 years - 1% of the principal amount will be deducted as a penalty.

Multiple withdrawals from an account are not permitted.

Opening an SCSS Account

You can open an SCSS account either at an authorised bank branch or at a post office branch. If the bank allows, you can open the SCSS account online on the bank’s internet banking portal or mobile banking app. There is no option to open the SCSS account online with the post office.

You can also download the SCSS application form from the India Post website. You need to fill in the form and submit it with the authorised post office along with the required documents and pay the deposit to open the account.

Frequently asked questions