The Indian Postal Service has been in existence for ages. It was the sole medium of communication located at distant places. Apart from delivery services, it also offers investment opportunities called Post Office small saving schemes. Every post office in India offers such schemes for the benefit of all the people. An investor is likely to relish several tax exemptions and high returns as the Indian Government supports these schemes.
In all, there are nine different schemes offered by every postal service in India. Each one has its interest rates and tax deductions. As you read further, I will explain the concept of small saving schemes offered by the post offices, the types of schemes prevalent today.
The interest rates during the first quarter of the financial year 2020-21 are discussed in great detail. Lastly, the tax exemptions on every scheme, and some important questions about this concept are mentioned.
Types Of Schemes Offered By The Post Office:
Some of Post Office Small Saving Schemes are described below:
1. Post Office Savings Account
This type of savings account is like any other account that individuals’ open in a bank.
i. The account is opened by a single individual, a joint account is opened by two individuals, any minors who have completed 10 years or the parent/guardian of any minor.
ii. An individual is permitted to open a single account in a post office. But the account is transferred among the post offices via net banking.
iii. The first deposit is made by cash and at any instant of time at least Rs. 500 should be present in the account. If this criteria is not satisfied, then the account holders are charged a maintenance fee of Rs.100 from the account.
iv.To prevent the inactivation of the account, one transaction is made within the first three financial years.
v. After becoming a major, every minor has to apply for the transition of the account holder.
vi. Nomination is done either while opening the account or even after opening.
2. 5-Year Post Office Recurring Deposit Amount
This scheme allows investors to make monthly investments. These investments are made over a tenure of five years. It guarantees high returns to all the account holders.
Prominent Features :
i. The account holder can either be a single individual or two individuals in the case of a joint account or minor account holders above 10 years or the minor’s parents/guardians.
ii. An investor can open as many accounts in a single bank, and they have the privilege to transfer their accounts to other post offices in the country.
iii. The first deposit could be made either by cash or cheque, and the least amount to be deposited is Rs. 100.
iv. It is mandatory for a minor account holder to apply for the conversion of account to his name when turned significant.
v. Nomination can be done at the time of opening the account or even after opening it.
vi. If the investor wishes to close the account before its maturity, then it is done only after three years from the inception of the account.
vii. Investors can apply for loans. But every individual can only avail of a single loan at 50 percent of the balance in the account.
3. Post Office Time Deposit Amount.
This saving scheme has various time duration for the application of the investment. The investors are allowed to select the most appropriate duration as per their convenience. Accordingly, the interest rates for each duration varies:
i. The account can be started either by a single individual or joint account, which includes three people or a minor or the guardian of the minor.
ii. An individual can open as many accounts as he wishes in a single post office. The account can also be transferred from one post office to another.
iii. The smallest deposit at the time of opening the account should be Rs. 1,000 or any multiples of 100, which can be paid either through cash or cheque.
iv. Upon becoming major, minor account holders have to apply for the modification of their account.
v. Nomination can be done at the time of opening or even after opening the account.
vi. The tenure of the scheme can be extended by applying to the accounting office.
vii. The account cannot be closed before the expiry of 6 months, or else the interest rates of the post office savings account should be paid.
viii. An investment is eligible for the tax deduction under Section 80C, of the Income Tax Act only if the investment tenure is less than 5 years.
The Interest Rate Offered On Various Time Periods Is As Stated In The Tabular Column:
4. Post Office Monthly Income Amount
As per this scheme, the investors have to deposit a considerable lump-sum on opening an account. This interest generated on the lump-sum assures a monthly income to the investors.
i. The account may be opened by a single individual or a joint account with three individuals or minors above 10 years of age or their guardians and parents.
ii. An individual can open many accounts in a single post office, and these accounts can be transferred to other post offices across the country.
iii. To open an account, at least Rs.1,000 should be deposited either by cash or cheque. The largest limit is Rs.4.5 lakh for an individual. In the case of a joint account, every individual can contribute an amount of Rs. 4.5 lakh, which sums up to a whopping 13.5 lakh.
iv. This investment becomes mature after 5 years. The investment can also be closed before the completion of the entire tenure. After 1 year of opening an account but before 3 years, premature closure makes the investors liable for a deduction of 2 percent of the deposit money. The investment closure after 3 years, levies of 1 percent of the amount on the investors.
v. The interest earned on the account is drawn to the savings account of the account holder after every month from the inception of the deposits. Suppose an individual plan to avail of this scheme, assuming his initial investment is Rs. 1 lakh. Every month interest of Rs.1,000 will be generated, which is transferred to the savings account of the individual. Through this method, any individual can generate a monthly income for him over a tenure of 5 years. On the completion of 5 years the initial investment is then returned back to the investor.
5. Senior Citizens Savings Scheme
This scheme is brought about for the benefit of all the senior citizens in our country. An individual can avail it above 60 years of age. Also, the ones who have taken voluntary retirement at the age of 55 are eligible for this scheme.
i. Individuals from the Defence Service retired at the age of 50 years can open an account under this scheme.
ii. Citizens can create an account individually or a joint account. In this scheme, a joint account is permitted only with the spouse of the investor. He can open as many accounts in the same post office, but the total investment should not exceed the largest limit. The accounts can be transferred from one post office to another.
iii. This scheme requires a small limit of Rs.1,000, and it is limited to Rs.15 lakh. The deposit below 1 lakh can be made by cash, but any deposits above 1 lakh should be made by cheque.
iv. Every account matures after 5 years. An extension of 3 years is permitted as per the investor’s demand; hence, an application must be submitted within 1 year after the maturity. During the extended period, the investment can be terminated whenever possible without any deductions in the interests.
v. If the account is closed before a year, then no interest will be provided on the principal amount, and if already issued, it will be recovered back by the authorities.
vi. If the account is closed after 1 year, but before 2 years, then 1.5 percent of the deposit amount will be levied on the investors.
vii. If the account is terminated after 2 years of activation, then the investors are charged 1 percent of their deposits.
viii. The investments made under this scheme are subjected to tax exemptions according to Section 80C.
6. Public Provident Fund Account
This is a long-term scheme which has a tenure of 15 years but offers high returns.
i. The account can be opened by any individual in India.
ii. Every citizen is restricted to open a single account under this scheme. Joint accounts are not permitted.
iii. Atleast Rs.500 should be deposited while opening an account which can be paid through cash or cheques.
iv. The investors can open accounts for the minors, but the total investments in both the accounts should not exceed the largest limit of Rs.1.5 lakh.
v. The tenure can be extended for 5 years after its maturity in 15 years.
vi. The account holders can avail loans after 3 years from opening the account and before the 6 years only.
vii. Tax exemptions can be claimed by the account holders according to Section 80C under the PPF.
viii. The account can be closed after 5 years from its inception. But this will cause the investor a penalty of 1 percent of the initial deposit. Closure can be permitted only under genuine circumstances such as diagnoses of fatal disease to the account holder or his family members, higher education of the holder, or his children, or the holder’s permanent relocation.
7. National Savings Certificate
This Post Office Small Saving Scheme is for NSC gives deduction on investment under section 80C.
i. The account can be opened by a single individual or a joint account with 3 members or minor above 10 years or his guardian.
ii. There is no limit to the initial deposit. But, a small amount of Rs.1,000 or amount in multiples of 100 has to be made.
iii. The maturity term is 5 years.
iv. According to Section 80C, of the Income Tax Act, tax deduction can be availed by the investment’s account holders.
v. The NSC certificates are purchased and used as an assurance to avail loans. They are issued as passbooks.
vi. The transfer of certificates from one person to another during the tenure of the loan is permitted.
8. Kisan Vikas Patra Account
This scheme enables its investors to double their amount. It is an efficient method for the upcoming, small-scale investors who cannot avail of any other financial strategies.
i. The account opened either by a single individual or joint account with three members or minors above 10 years or the guardians.
ii. The least investment deposit is Rs.1,000 and any multiples of 100 with no restrictions over an enormous amount.
iii. The investments made by investors double in 10 years and 4 months.
iv. Nomination facility is not available under this scheme.
v. The certificates can be transferred from one person to another.
vi. Tax exemptions do not apply to the principal amount.
9. Sukanya Samriddhi Account
This scheme is for the greater good of the girl child. Her parents or legal guardians can open it after she reaches the age of 10. The guardian can open an account for at least one child but not greater than two.
i. The least deposit made to open an account is Rs.250, with the largest limit not exceeding Rs.1.5 lakh.
ii. The deposits can be made until 15 years, and the account will be terminated after 21 years.
iii. Temporary withdrawal is permitted only after the girl reaches 18 years of age. The largest amount withdrawn is 50 percent of the total balance.
iv. The account can be closed before the term only after 18 years for the purpose of marriage or higher education of the girl.
v. Under Section 80C, the girl can avail of a tax deduction of Rs.1.5 lakh on the investment amount. Apart from this, the interest received and the maturity amount is also exempted from tax.
Interest Rates On The Post Office Small Saving Schemes With Effect From The Quarter April-June 2020
Due to the ongoing pandemic, most banks and financial companies have reduced the deposits’ interest rates. The Government of India has already slashed the interest rates on the post office small saving schemes for the first quarter of the financial year 2020-21. The interest rates have been deducted by 70 to 140 points for the various schemes which earlier guaranteed high returns to its investors.
Why Should We Apply For The Schemes Offered By The Indian Postal Service?
We should apply for the Post Office Small Saving scheme because of the following reasons:
1. Low-Risk And Highly Reliable.
The postal service is an initiative by the Government of India; hence all the schemes offered by the post offices are substantiated by the Government itself; thus, they are reliable and offer low risk to the investors.
2. High Rates Of Return Assured By The Indian Government.
The interest rates are revised every 3 months. Each year has 4 quarters during which the interest rates change in the range of 4%-9%, which enables the investors to gain high returns.
3. Investments Are Long-Term.
As we have already seen, most of the schemes’ smallest tenure is not less than 5 years. It can be extended up to 15 to 21 years, allowing the investors to accumulate significant returns that provide financial security.
4. Tax Benefits.
According to Section 80C, of the Income Tax Act, tax exemptions of Rs.1.5 lakh can be availed on the principal amount in most of the schemes, thereby reducing the burden on the account holders.
Related Frequently Asked Questions
1. Is investing in a small savings scheme with the post office safe?
Yes, it is safe, and your savings will yield better returns as the Government of India supposes this initiative and see through it that every investor is benefitted.
2. Are there any tax benefits on these schemes?
Yes, there are. Many of these schemes offer a deduction according to section 80C of the Income Tax Act.
3. Is it possible to open an account in one post office and withdraw the deposit from another?
Yes, like any other bank withdrawal, even post office withdrawals are made from different branches of the post office across the country. The least balance of Rs.50 is always maintained in the account to avoid discontinuation of the account.
4. What is the limit for withdrawal?
In a day, Rs.10,000 is withdrawn by cash, but through an ATM card, the limit is extended to Rs.25,000 per day.
5. Does the post office offer schemes for students?
Yes, excluding the Senior Citizen Savings Scheme, all the other schemes are availed by the students, provided they are 18 years old. Yet, Sukanya Samriddhi Scheme can only be availed by the girls.
6. Does the post office permit online checking of account details?
Yes, this is achieved through the online bank facility. Prior registration by the account holder having a valid account or a joint account in the post office is mandatory.
7. How can a person invest in the monthly scheme offered by the post office?
To start investing, a person should fill an Account Opening Form and submit KYC documents and deposit slip.
8. How to claim the deposit if an account holder is deceased?
This is done in 3 ways:
i. If the deceased person had done a nomination during the opening of the account, then the nominee can submit the nomination claim along with the death certificate of the deceased.
ii. Legal evidence such as a succession certificate or statement of the will and the death certificate and claim form, along with the KYC documents, will also do the job.
iii. If there is no nomination, then the legal successor can claim a deposit of up to 5 lakh by procuring a claim form, death certificate, Annexure-I (Letter of Indemnity), Annexure-II(Affidavit), and Annexure III (Letter of disclaimer of affidavit) along with all the KYC documents.
iv. If the deposit is above 5 lakh, then a succession certificate will suffice, and this is done within 6 months of the death of the investor.
9. What does a silent account mean? How is it renewed?
When transactions are not made for three consecutive financial years, then this account is called a silent account. It is renewed by submitting an application form with the necessary KYC documents.
10. Can the interest from the Monthly Income Scheme be attributed to the Recurring Deposit?
No, this cannot happen. The interest gained from the Monthly Income Scheme can only be credited to the savings account of the investor.
Post office small saving schemes are the best opportunities to boost the finances of any individual. But according to the current scenario, the decrease in the interest rates has had a significant impact on the masses as their saving will now yield a lesser return compared to the returns that were generated according to the previous quarter. Every financial year is divided into 4 quarters, April-June, July-September, October-December, and January-March. So, the interest rates vary quarterly instead of yearly. Hence, the interest rates can increase by a substantial amount or suffer a huge dip in the same financial year. But one must not forget about the benefits of these schemes as the investments we make now can provide strong financial security during our youth and even after our retirement.