1. India Post offers a wide range of tax-saving options for the risk-averse

India Post offers a wide range of tax-saving options for the risk-averse

Small savings of India Post are a popular investment option for risk-averse investors. Post office investments provide flexibility and even tax benefits.

By: | Updated: September 1, 2015 11:22 AM
Tax saving options

Small savings of India Post are a popular investment option for risk-averse investors. Post office investments provide flexibility and even tax benefits.

Small savings of India Post are a popular investment option for risk-averse investors. Post office investments provide flexibility and even tax benefits.

Public Provident Fund

For individuals, PPF is the most preferred investment option. The investment is tax-exempt at all the three stages. At present, the interest rate on PPF is 8.7% per annum, compounded yearly. A resident Indian can open one account, and the subscriber can even open another account in the name of minors, but the maximum investment limit will be Rs 1.5 lakh by adding the balance in all accounts.

Deposits made under PPF qualify for deduction from income under Section 80C of I-T Act, of up to R1.5 lakh a year.

The PPF account matures after 15 years and can be renewed every five years thereafter. Non-residents cannot open a new account, but can continue their existing accounts till its maturity, without extensions.

While premature closure of account is not allowed, one can withdraw money every year from the seventh financial year from the year of opening the account.

One can avail of loan against PPF from the third financial year and the money invested in PPF cannot be attached under any court order. One can deposit in lump- sum or even make 12 transactions a year and the minimum investment amount is Rs 500 a year. If one fails to make a deposit in any given year, a penalty of Rs 50 for each year of default and the minimum amount of Rs 500 has to be paid.

National Savings Certificates

NSCs of five  and 10-year maturities are one of the most preferred investments options. NSCs offered by the post office are government-guaranteed and is a tax-saving option for investors.

The interest is compounded and is returned along with the principal amount on maturity. The minimum amount
that can be invested in NSCs is Rs 100 and one can buy certificates in denominations of Rs 500, Rs 1,000, Rs 5,000 and Rs 10,000. Moreover, there is no limit for investment in this instrument.

If one invests Rs 100 in a five-year NSC, he will get Rs 151.62 after five years (8.5% interest rate) and in a 10-year NSC, the investor will get Rs 236.60 after maturity (8.8% interest rate). An investor can avail of tax deduction under Section 80 C, of up to Rs 1.5 lakh per annum, and the annual interest earned is deemed to be reinvested and thus qualifies for deduction under Section 80 C too.

An investor can transfer the certificates from one post office to another and duplicate certificates are issued in case they are lost or stolen. For security, post offices also paste the photograph of the investor on every certificate issued.
Post Office Savings Account

One can open a savings account with the Post Office and the interest rate is 4% per annum. Interest income of up to Rs 10,000 is exempt from tax under Section under section 80TTA of the IT Act.

Five-year Post Office Time Deposit

Fixed deposits in post offices work like bank deposits. The interest payable is annually but is calculated quarterly. For a five-year deposit, the interest rate is 8.50% and the investment under the five-year deposit will qualify for the benefit of Section 80C of the Income-Tax Act, 1961.

The FD account can be transferred from one post office to another and any number of accounts can be opened in any post office across the country.

  1. N
    Narendra M
    Sep 3, 2015 at 10:02 pm
    (1) Whenever there is discussion on rates of interest on bank loans, deposits and RBI’s rate, there is the usual demand for reducing administered rates of interest on schemes like Public Provident Fund, Post Office Monthly Income Scheme and other schemes of the National Savings Organization (NSO). Commercial banks always complain that they are losing savings to such schemes. If investors do not get adequate return on deposits with banks, they are compelled to look for other investment options like these schemes of NSO. (2) Considering trends in consumer price index (CPI) during last three decades (and even a longer period), can one say that current rates of interest on NSO schemes protect citizens from risk of capital erosion? How can rates on such schemes be market driven? (3) My point is that all non-pensioners, whose main source of income is interest on bank fixed deposits, NSO schemes, etc., have to be protected from risk of capital erosion. (3) Those who get inflation indexed government pension do not face any major problem on account of reduction in interest rates as their pension is linked to CPI. My question is this: Is the government not concerned about that section of our society which is vulnerable to interest rate risk. If it is concerned, what kind of social security it would provide to senior citizens and other sections of the society who do not receive any pension?
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