Most of the investors are not very familiar with post office savings schemes but these are as lucrative and safe as the schemes offered by banks. Post office savings schemes are normally government backed schemes that are sold through the Department of Posts. Some of the Post office schemes are fairly lucrative and also offer tax benefits to top up. Here is a rundown…
As the name suggests, POTDs can be opened at any departmental post office near to you. The minimum amount to be deposited in a POTD is Rs 200 and there is no upper limit. The rates of interest depend on the time to maturity. For example, a 1-year deposit attracts 6.9% interest while a 5-year deposit attracts 7.8% interest. Of course, these rates are subject to change from time to time and will be notified by the Indian Postal Department. POTD accounts can be opened either in individual names or joint names and can also be opened in the name of a minor. POTDs are typically automatically renewable for the same period as your original deposit. POTDs maturing after 5 years will also give an additional tax exemption under Section 80C of the Income Tax Act within the overall limit of Rs 1.50 lakh.
The POMIS is also a post office deposit which attracts interest rate of 7.30%. There is a maximum investment limit of Rs 4.50 lakh in an individual account and Rs 9.00 lakh in a joint account. In case of multiple POMIS accounts, the collective limit for all the accounts put together will be Rs 4.50 lakh. The scheme is suited to retirees who are dependent on regular income since the interest is credited to your account each month. The POMIS can be cashed prematurely after 1 year by paying a charge of 2% and after 3 years by paying a charge of 1% of the withdrawn amount.
The PORD, as the name suggests, is a regular savings account with the post office with a maturity period of 5 years. Like most Post Office accounts, the account is automatically renewed on the date of maturity for a similar period. A PORD account can be commenced with a monthly outlay of as low as Rs 10 per month. The PORD pays interest at 7.3% currently which is compounded quarterly for calculation purposes. Effectively, this means that a monthly deposit of Rs 10 will grow to Rs 725.05 at the end of 5 years after considering compounding effect.
The Kisan Vikas Patra (KVP) can be purchased from any post office across the counter. The KVP carries a rate of interest of 7.7% and matures in a period of 112 months. KVPs can be purchased from any post office and can either be purchased by an adult in his/her own name on the name of a minor. The minimum denomination for investment in KVP is Rs 1000 and there is no upper limit for investment in KVP. Investors need to remember one important thing about KVPs. The interest is paid out only on maturity, but the accrued interest must be shown as income each year while filing your tax returns and tax needs to be paid accordingly. Kisan Vikas Patra instruments are easily transferable and can also be offered as eligible collateral to take loans.
NSC is also offered as a deposit scheme by the Post Offices. It is similar to KVP in the sense that the interest is accrued and not paid out each year; but only at maturity. But the key difference is that interest paid on the NSC is tax-free while interest paid on the KVP is taxable. The second advantage that NSC has over KVP is that while KVP is not eligible for exemption under Section 80C of the Income Tax Act, investments in NSC are eligible for such exemption subject to the overall maximum limit of Rs 150,000. The annual interest accrued in NSC is 8% which makes it slightly more attractive than the KVP, apart from the tax benefits that NSC proffers.
The Senior Citizens Savings Scheme (SCSS), as the name suggests, is restricted to senior citizens above the age of 55. Such SCSS accounts can be opened either at a scheduled bank or even at the nearest post office. However, this deposit under the SCSS can only be made out of your retirement benefits and that too subject to a maximum limit of Rs 15 lakh under all heads. Maturity period is 5 years. To be eligible to invest in SCSS, you must either be 60 years old and this age limit gets lowered to 55 in case you have opted for superannuation. The second condition for SCSS is that there can be only 1 deposit into this account. Withdrawals are permitted from the account after completion of 1 year but with a penalty clause. The SCSS deposit currently attracts an interest rate of 8.7%.
This special scheme was launched in January 2015 by the Honourable Prime Minister of India, Shri Narendra Modi, under the Beti Bachao, Beti Padhao program. The Sukanya Samriddhi Yojana is intended to save and provide for the education and marriage expenses of the girl child. The SSY account can be opened either at a bank or at the post office and has to be opened before the girl child turns 10 years of age. The account matures when the girl child reaches 21. There is a facility of partial withdrawal of the money up to 50% when the girl child attains 18 years of age. The SSY account can only be opened by the girl child’s parents or legal guardians and is subject to a maximum deposit limit of Rs 150,000 per annum. The SSY scheme is also eligible for tax exemption under Section 80C of the Income Tax Act. Interest rates on the SSY are relatively more attractive compared to other deposits of similar tenure.
The bottom line is that the post office also offers you a wide array of choices to pick from. The take is yours!
(By Vaibhav Agrawal, Head of Research and ARQ, Angel Broking)