A low risk investment which has always been popular amongst Indians has been the post office small savings scheme. These schemes also offer tax benefits, are reliable and are risk-free investments that one can invest in. Like with a bank, one can also open a savings account with a post office and earn a fixed rate of interest.
Here are the main features of the Post Office Small Savings Scheme:
- A minimum balance to be maintained is different for cheque and non-cheque facility account. In case of non-cheque, it is Rs 50 whereas for cheque facility account, it is Rs 500.
- Subscribers can choose their nominee for the account.
- Nomination facility is available under this scheme.
- Only one account can be opened in one post office.
- The account holder must initiate a transaction, either deposit or withdrawal, in three financial years in order to keep the account active.
- Individual needs to do at least one transaction of deposit or withdrawal in three financial years in order to keep the account active (In order to keep the account active an individual has to record at least one transaction in three financial years.
- This can be a deposit or a withdrawal.
- Interest earned is tax free up to Rs 10,000 per year from financial year 2012-13.
Advantages of Post Office Tax Savings Schemes
- The scheme is very easy to enroll into and earn a fixed return over a long period of time.
- It is suited and accessible for rural and urban area investors, who are looking for limited paperwork and government guaranteed returns.
- Public Provident Fund and Sukanya Samriddhi Yojana are the only two Post Office Savings Schemes which fall under the EEE (investment amount, interest earned and maturity amount are exempted from tax) category.
- Individuals can choose and elect their nominees for the respective accounts.
Eligibility Criteria for Post Office Tax Savings Schemes
- Any Indian citizen above 18 years can open a savings account under post office tax saving scheme, either individually or on behalf of a minor
- Joint account can be opened by two or three adults
Comparison of Post Office Tax Savings Schemes
A macro comparison of different post office tax saving schemes is provided in the table below. Each scheme is also described further in the detail below.
| Names of Tax Saving Schemes | Interest Rates | Min Tenure | Min Investment Amount |
|---|---|---|---|
| Post office Savings Account | 4.0% p.a on Individual & Joint A/c | – | Rs.20 |
| National Savings Recurring Deposit Account | 7.2% p.a (Quarterly compounded) | 5 year | Rs.10 per month |
| National Savings Time Deposit Account | 1/2/3 year: 6.9% 5 Year: 7.7% | 1 year | Rs.100 |
| National Savings Monthly Income Account | 7.6% p.a | 5 years | Rs.20 |
| Senior Citizen Savings Scheme Account | 8.6% p.a | 5 years | Cash: Below Rs1 lakh in multiples of Rs1,000.Cheque: Rs1 lakh or above |
| Public Provident Fund Account | 7.9% p.a | 15 years | Rs.100 |
| Sukanya Samriddhi Account | 8.4% p.a | 21 years | Rs.250 |
National Savings Recurring Deposit Account (5 year Post office Recurring Deposit Account)
In the recurring deposit scheme, an individual can invest a fixed amount of money at regular intervals for 5 years. After the investment has matured after 5 years, the amount (principal amount plus interest earned) is paid back to the individual.
The individual can open multiple accounts in the post office. A period investment is required to keep the account active. If subsequent deposits are not made up to the prescribed day, a default fee is charged. One can also avail rebate on advance deposits of at least 6 instalments.
National Savings Time Deposit Account (Post Office Time Deposit Account)
Just like a bank FD, one can also open a term deposit account in the Post office for any of the four tenures available – 1, 2, 3 and 5 years. When the PO term deposit account matures, the same account will be automatically renewed for the period it was initially opened for. In this scheme, interest is payable annually but calculated quarterly
National Savings Monthly Income Account (Post Monthly Income Scheme Account)
This scheme offers monthly interest to investors where the interest amount is auto-credited into their savings account at the same post office.
The investment can be opened by 2-3 adults. The maximum investment limit for a single account is Rs 4.5 lakhs and Rs 9 lakhs for a joint account. One can also open multiple accounts in any post office subject to the maximum investment amounts.
There is also a premature withdrawal facility available after the completion of one year of the investment. A deduction of 2% from the investment is made.
Senior Citizens Savings Scheme Account (SCSS)
This tax saving scheme is only meant for senior citizens, ie, those aged over 60 years can invest in this particular scheme
Currently, the maximum amount that can be invested by an individual is Rs 15 lakh. This saving scheme qualifies for tax benefits under section 80C. Main features given below:
- Multiple accounts can be opened in any post office subject to maximum investment limit
- Lock-in period of 5 years is applicable but premature withdrawal is allowed after one year by deducting 1.5 percent of the deposit rather than 2 percent.
- After maturity, the account can be extended for a further 3 years and in such cases, the investor can close this account any time after that without any deduction.
Individuals above 55 years or more but less than 60 years who has retired can also open this account. However, it should be opened within one month of receipt of retirement benefits and the amount should not exceed the amount of retirement benefits.
Public Provident Fund Account (15 year PPF)
This scheme has the largest number of investors among all other schemes. The key feature of the PPF Account is the 15 year lock in period. The account holder can only withdraw partially from the account after the seventh year and avail loans against it from the 3rd year.
A premature closure is not allowed in this scheme. Join accounts are also not permitted under this scheme. Nominees can be elected at the time of opening and after opening the account.
Sukanya Samriddhi Account
This scheme is listed under the ‘Beti Bachao Beti Padhao’ campaign and parents or legal guardian can open this account in the name of a girl child. The investment amount, interest earned and maturity amount are exempted from tax.
Main features of this account are given below:
- Account can be opened up to the age of 10 years from the date of birth and can be closed after the child turns 21 years.
- Maturity amount is payable after the completion of 21 years.
- Premature closure of the account is allowed after the completion of 18 years provided that the child is married
- Account will be discontinued in case a minimum Rs 250 is not deposited in a financial year.
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