Both Kisan Vikas Patra and National Savings Certificate are fixed-income instruments available in post office branches. The recent rate hikes on small savings schemes have made them more attractive. Find out which one is your cup of tea:
Kisan Vikas Patra
To benefit the farmers of rural areas, where access to banks was difficult, Kisan Vikas Patra (KVP) was introduced in 1988. It soon became popular among general public due to its easy availability and transferability, which also made it an easy instrument for money laundering, leading to its discontinuation in 2011. It has been reintroduced in 2014 with added securities to stop its misuse.
Eligibility: Any person of age 18 years or more may purchase KVP singly or jointly with another adult person or a minor.
How to apply: People willing to buy KVP may approach a nearby post office with a photo ID card and address proof. Stringent KYC norms, including production of PAN details, are applicable for high-value cash transactions.
Investment amount: The minimum investment required for KVP is Rs 1,000 and in multiples of Rs 1,000 thereafter. There is no limit on maximum investments.
Return: After the recent 0.4 per cent interest rate hike to 7.7 per cent from 7.3 per cent, the amount invested will now get doubled in 112 months (9 years and 4 months), that is 6 months before the earlier period of 118 months (9 years and 10 months). The interest is compounded annually.
Tax benefits: There are no tax benefits, neither on contribution nor on return, under KPV.
National Savings Certificates
The National Savings Certificate (NSC) is a fixed income investment scheme of the Government of India, in which you may invest at any post office.
Eligibility: A single holder type certificate can be purchased by an adult for himself or on behalf of a minor or by a minor.
How to apply: People willing to buy NSC may approach a nearby post office with PAN card and address proof. Stringent KYC norms are applicable for high-value cash transactions.
Investment amount: The minimum investment required for NSC is Rs 100 and in multiples of Rs 100 thereafter. There is no limit on maximum investments.
Return: The interest on 5-year NSC has been increased by 0.4 per cent to 8 per cent from earlier rate of 7.6 per cent. The interest is compounded annually. At the new interest rate, Rs 100 will become Rs 146.93 in 5 years.
Tax benefits: Deposits up to Rs 1,50,00 qualify for tax rebate under u/s 80C of IT Act. The interest accrues annually but is deemed to be reinvested u/s 80C. So the interest will be added to ‘income from other sources’ every year on accrual basis and the same amount will be eligible for deduction u/s 80C.
So, NSC gives higher returns than KVP and also has tax benefits. However, the stricter KYC norms and calculation of accrual income every year for taxation purpose are dampeners.