The primary objective of an investor is wealth creation and everyone wants to maximise returns. Many investors are willing to take more risk by investing in shares. However, others want to invest in risk-averse instruments that provide definite returns with no inherent risk of capital loss. Post office investments generally provide this flexibility. Here is a look at taxability of some of the post office investment products:
Public Provident Fund
Any individual (other than a non-resident) can make an investment of R500 to R1,00,000 in a financial year in a Public Provident fund (PPF). The rate of interest available is 8.8%. The entire investment is eligible for deduction under Section 80C of the Income Tax Act, 1961, subject to a limit of R1,00,000. Interest earned on this deposit is exempt from tax and the investment is not chargeable to wealth tax.
National Savings Certificates
National savings certificates are more like fixed deposits with the post office wherein you purchase a certificate that is generally redeemable in a specified time. These certificates provide a return of 8.6-8.9%. They are in denominations of R100, R500, R1,000, R5,000 and R10,000. Tax deduction is available up to R1,00,000 under Section 80C of the IT Act. The interest earned every year on NSC gets reinvested and forms part of the capital and also entails deduction under Section 80C, except the final yearís interest that does not get reinvested. It is not chargeable to wealth tax.
Post Office Savings Account
Any individual can open a savings account with the post office. It works like a normal savings account opened in a bank and the cheque facility is also available. The savings bank account generally earns a return of 4% per annum. Interest upto R3,500 is exempt from tax under Section 10(15) of the IT Act. Further, a deduction of R10,000 is also available for the interest under Section 80TTA of the IT Act.
Monthly Income Scheme
Under the Monthly Income Scheme, an investor is required to make a one-time deposit. The amount of deposit can range from R1,500 to R4,50,000 in a single account and R9,00,000 in a joint account. The rate of interest offered is 8.5% and the scheme yields monthly income on the deposits made. Interest income is liable to tax, but the investment is not chargeable to wealth tax.
Any individual (other than an NRI) can open a recurring deposit account. The minimum investment to be made in