Post Office Schemes in India-Who should invest?

Post Office schemes in IndiaPost Office Schemes in India-Who should invest?

If you are looking for a safe investment option, invest in Post Office Schemes in India. Post office schemes in India include Public Provident Fund, Term deposits, Recurring Deposits and National Saving Certificates. This article is based on request from Maithili on “Suggest a topic” option to write an article about Post office schemes, its features and latest updates on this.

Post office schemes in India

Indian post office offers small saving schemes (Government enterprise) which have been popular as they provide assured returns along with protection of the capital.

Also read: National Saving Certificates – Complete guide

Complete guide on post office schemes in India

Public Provident fund:

  • Investment up to ₹ 1,00,000 per annum qualifies for IT Rebate under section 80 C of Income Tax Act.
  • Current interest rate is 8.70% per annum.
  • Tenure – 15 years
  • Loan facility on PPF account is available from 3rd financial year up to a 5th financial year. The rate of interest charged on loan shall be 2% per annum more than the PPF interest.
  • Withdrawal permitted from 6th financial year.
  • Non-Resident Indians (NRIs) are not eligible.
  • An individual cannot invest on behalf of a HUF (Hindu Undivided Family) or Association of persons.
  • Minimum investment is ₹ 500 and maximum is ₹ 100,000
  • Interest earned is tax free
  • To whom this scheme is suitable: This is best suitable for those who want to get tax exemption u/s 80C up to ₹ 1 Lakh as well as those who want to accumulate funds for retirement purpose thereby earning safe, highest and tax free returns.

Monthly Income scheme (MIS): Safe & assured returns who are looking for regular monthly income.

  • Good investment option who is looking for monthly fixed income
  • Rate of interest is 8.40%.
  • Maturity Period – 5 years
  • Auto credit facility to SB Account.

National Saving certificate: NSC’s are generally used for tax saving purpose and to get regular fixed income.

  • No TDS deducted by the post office. However you need to declare this as “Interest income” and pay necessary income tax based on your individual tax slab.
  • Premature withdrawal not available. However one reader commented saying Post office person has indicated that this can be withdrawn. I do not know how this could be specific to a post office.
  • You can keep these NSC’s with banks as collateral security for loans
  • Investment up to INR 1,00,000/- per annum qualifies for IT Rebate under section 80C of the Income tax act.
  • Available in 5 years and 10 year options. Rate of interest 8.50% p.a. and 8.80% p.a. respectively.
  • Minimum investment is ₹ 100 and no maximum limit. NSC’s are available in denominations of ₹ 100, ₹ 500, ₹ 1,000, ₹ 5,000 and ₹ 10,000.
  • Best Suitable to: While investment in NSC qualifies for a tax rebate u/s 80C, this could be used as one of the best investment options for retirement purpose by purchasing NSC’s every month and re-investing at maturity.

Senior citizens saving schemes (SCSS)

  • The account may be opened by an individual, who has attained age of 60 years or above on the date of the opening of the account.
  • Who has attained the age 55 years or more but less than 60 years and has retired under a Voluntary Retirement Scheme or a Special Voluntary Retirement Scheme on the date of the opening of the account within three months from the date of retirement.
  • No age limit for the retired personnel of Defense services provided they fulfill other specified conditions.
  • The account may be opened in individual capacity or jointly with spouse.
  • NRIs and HUF are not eligible to open an account.
  • Minimum is ₹ 1,000 and Maximum limit of ₹ 15 lakhs
  • Premature withdrawal is available after 1 year, but 1.5% would be deducted on deposit amount
  • Premature withdrawal is available after 2 years, but 1% would be deducted on deposit amount
  • Premature closure allowed after three years without any deduction.
  • In case of death of the depositor before maturity, the account shall be closed and deposit refunded without any deduction along with interest.
  • Interest @ 9.20% per year from the date of deposit on a quarterly basis.
  • Nomination facility is available in the Scheme.
  • Investment under this qualifies for 80C IT benefits.
  • Good and safe investment choice for senior citizens.

Time deposits:

  • Any individual (a single adult or two adults jointly) can open Time deposit account.
  • Time deposit account can be opened for 1 Year, 2 Year, 3 Year and 5 Year
  • In case of premature closure from 6 months to 1 year of deposit, simple interest would be paid. Beyond one year, interest would be paid at one percent less than the term deposit interest rates.
  • Interest rates are 8.20%, 8.20%, 8.30%, 8.40% for 1,2,3 & 5 years TD account. Interest would be compounded quarterly.
  • Investment of 5  year term deposit qualifies for 80C deduction up to ₹ 1 Lakh.

Also read: Is Post office term deposit is better than Bank FD?

Recurring deposit:

  • Any individual (a single adult or two adults jointly) can open an account.
  • Advance Deposits earn rebate.
  • Rate of interest is 8.30%
  • Maturity value of a 5 Years RD account opened on or after 1.4.2013 with monthly deposit of INR.10/- shall be INR.744.53.
  • Part withdrawal facility available.
  • Premature closure allowed after three years.
  • Four defaults are allowed. Defaults can be paid within 2 months.
  • Best suitable for every individual who are looking to open RD account. Several banks offer lesser interest rates comparing to Post office RD, hence you can choose this as alternate option.

Saving account:

  • Any individual can open an account.
  • Cheque facility available. 
  • Rate of interest 4% per annum

Readers, what is your opinion about these post office schemes in India? Please give your comments

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Suresh
Post office schemes in India

Suresh KP

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30 comments

  1. Respected sir.
    I m investing 3500/- per month in post office R. D. As interest rate of 8.4% my meturity amount is 261000/- approx.
    I want to know any tax will be deducted on my meturity amount or not. As I know, if I earned 10000 /- is early as interest then 10% will be deducted from interested earned amount.

    If tax is applicable for my RD then how much tax will be deducted from my meturity amount.

    2nd is I am working in defence. So my annual income is not comes under taxable income. When it comes then my tax is automatically deduct from my defence Salery outhority.

    PLease send me reply on my mail. I. D

  2. Dear Suresh,
    In respect of Time Deposits the rate of interest given in their web page (of Post office) is 8,40 percent per annum for Time Deposits up to 4 years, interest will be calculated on quarterly basis and for 5 year deposits the rate is 8.5 percent per annum. The Maximum amount permissible is Rs.1.50 lakhs and this 5 year deposit only is eligible for 80.C benefit A depositor can withdraw the interest on maturity at 1st year end and 2nd year end and so on. This is permitted for 5 year deposits also And no TDS. Please correct me if I am wrong.
    Thanks for your articles.
    V.Ganapathyraman

  3. As per provisions of Senior Citizen Savings Scheme, after maturity; the account can be extended for further three years within one year of the maturity. The question is “Whether benefit of Section 80 C will be available for the Financial Year in which it is extended”.

  4. Hi Suresh

    I am US citizen and I am interested in FD options. Based on US incom tax rules, what do you suggest as the best option for NRIs? Thank you.

    1. Avni, You can open NRD FD scheme in India and invest your money. Such FD schemes, there is no income tax.I am not sure about US income tax rules, hence cannot comment.

  5. Mr Suresh,
    I’m an NRI though my family was staying with me, now they have moved to India. First and foremost I want to check as an NRI, can I open an FD in post office in my son’s name who is 11 years old? Which the RD investment could be useful for his higher studies. Kindly advise opening RD in Post office is possible or any other options are there.

    Thanks

  6. Hello Suresh,

    I am regular user of your web site.Appreciate putting things in easy way.I am getting 20,000 Rs rental every month and I want to invest this continuously for two years,suggest me something.Many thanks.

    1. Saleem, What kind of risk appetite you are ? If you are medium risk appetite investor, invest in balanced mutual funds like HDFC Balanced fund or ICICI Balanced fund. If you are low risk appetite, invest in just recurring deposits. 

  7. Hi Suresh, 

    I would like to invest Rs.5,000 per month in post office on my daughter's name who is 10yrs old. Is there any scheme in post office by which I could get a good amount for her marriage time. please guide me. 

    thanks 

     

    1. Srividya, There are several options like you can consider taking recurring deposit at post office which pays you 8.5% returns. In case you also want to benefit from tax savings, you can invest in PPF for 15 years. This would fetch you 8.7% annualised returns. It would provide tax savings u/s 80C (in the year when you invest) upto Rs 1 Lakh. Also the maturity amount is tax free. This is good for planning for your daughter marriage. Assuming that your daughter gets married at 25 years, we have 15 years time now. If you invest Rs 5,000 per month in post office PPF account which gives you 8.7% annualised returns, you would get Rs 18.91 Lakhs at the end of 15 years. However you should increase your investment year on year and invest up to Rs 1 lakh to get maximum benefit from such PPF account.

  8. Thanks for your prompt reply Suresh,

    Being from Arts background these tax systems are least understandable to me. let me ask few more things…If i invest 5 Lakhs this moment in NSC, it will be around seven lacs fifty thousands. That means i have gained 2.5 lacs in 5 years, so how much ihave to pay as tax. Do i have to pay the said tax by myself or the post office system will deduct it by itself. In other words i mean will get whole 7.5 lacs or I will get lesser than this amount because of tax.  My income is not taxable and this money is from my savings. I have never have had anything to do with these taxes. I am thinking to invest this NSC in five part one lac each with joint account with my sister. Please guide further. 

    Thanks for your patience.

    1. Hi Ramesh, I understand your problem, here are my comments 1) Your NSC interest would get accrued at 8.5% (approx). Means you need to add this interest income to your annual income and pay necessary tax every year. You would get final amount at the maturity period. However if you have not utilized u/s 80C up to Rs 1 Lakh, you can show this NSC interest income as claim and get exemption. Net summary, you may not need to pay tax if you have space in u/s 80C 2) If you think that no room for u/s 80C and you are already utilizing it, you can invest in PPF account where such interest is tax free. However it has a lock-in periof of 15 years, but it is good and safe for investment.

  9. I am thinking to invest around five lakhs on National Saving certificate…

    Do i have to pay TDS on the yearly basis. Do i have to  pay income tax for it.

    how NSC is different form Post Office Time Deposite.  

    Please write a precise guidance on this. Thanking you in anticipation,

    Ramesh Tenz

    1. Ramesh, 1) Interest earned on NSC should be shown as Interest income and pay necessary tax. However if you have any unclaimed 80C, you can show this interest income and claim exemption 2) NSC is available for 5 year and 10 year period. You can take loan on them. You can claim exemption u/s 80C for income tax. However for Post office TD these are for tenure of 1 to 5 years. These are like regular bank FD’s. No income tax exemptions u/s 80C. Also the interest received is tax free.

  10. Hi Suresh,Just had a realization..correct me if i am wrong.SCSS is a kind of MIS where we get interest on quarterly basis not that the interest is quarterly compounded.After 5 yrs maturity we will get back the principle.

  11. Hi Suresh,

    I am regular visitor on thise site. your are doing good job by sharing latest information and review.

    However it will be great if you could provide information on long term/short term gain calculatioin on NCD and mutual fund for higer tax bracket person.

    Thanks in advance.

    Regards,

    Kamlesh

     

     

  12. Hello sir

    I am working in govt sector. i want to know investment plans for my future, Can you give any suggestions.

     

    1. Hello Bharadwaj, It would depend on your risk appetite. If you are medium to high risk, invest in mutual funds (80%) + recurring deposits (20%). If you are low risk taker, invest 20% in mutual funds and 80% in recurring deposits or post office saving schemes etc. For mutual funds, you can look largecap or diversified funds like ICICI Pru focussed blue chip fund,BNPP Equity fund, UTI Opps fund and Quantum long term equity fund. You can pick any of these funds.

  13. Hi Suresh,

    Nice article, My opinion on the NSC as you commented like 'best investment option for retirement by purchaching the NSC every month and re-investing it on maturity".

    I think maintaining the NSC certificate physically each month year on year would be a cumbersome task as you need to keep them in safe custody to avoid theft, destroyed, mutilated etc.  Say a person who wants to invest in these cerificates every month till he retires(assume 20 yrs from now) he need to keep multiple certifcates for this, managing this would become a cumbersome activity.

    If its an online, this should be ok but no post office would provide the online NSC as of now.

    Your opinion on how to manage multiple NSC month on month for a long term please comment.

     

     

  14. Kudos to very well written article Mr.Suresh. I have a doubt. Is the interest earned from the Post Office PPF taxable at the maturity time?

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