Kisan Vikas Patra Scheme: Meaning, Benefits, Taxation and More

Kisan Vikas Patra (KVP) is one of the most popular small savings schemes offered by the Government of India. It is preferred by many investors because of its stable returns. It differs from market-linked investments like mutual funds and equities because it offers assured returns over a specified tenure.

Despite the name "Kisan Vikas Patra," it is not a scheme meant only for farmers. In fact, the scheme is open to eligible Indian residents who meet the prescribed criteria for investing in KVP.

The main feature of this scheme is its simplicity. The investors make a lump-sum investment and stay invested until maturity. On maturity, the investment doubles, based on the interest rate applicable at the time of purchase of the certificate. Currently, India Post offers an interest rate of 7.5% p.a. compounded annually, with ₹1,000 growing into ₹2,000 in 115 months. In this article, let us explore the Kisan Vikas Patra Scheme, its eligibility criteria, investment process, benefits, and more.

What is the Kisan Vikas Patra Scheme?

First introduced in 1988 by the Government of India, Kisan Vikas Patra aims to encourage individuals to develop a habit of long-term saving. Over time, the scheme evolved into a savings product for eligible resident Indians instead of being limited to farmers.

Under the KVP scheme, an individual makes a one-time deposit for a particular period. Interest accrues at the prevailing interest rate on the date the account is opened, and the investment matures when it reaches its maturity value.

As per the latest information available from India Post, KVP offers an interest rate of 7.5% per annum on a compound basis, and the investment doubles within 115 months (i.e., 9 years and 7 months).

For example, if an eligible person invests ₹1,00,000 at the prevailing rate, the maturity value will be around ₹2,00,000 within the required maturity period.

One of the good things about this scheme is its simple structure, which makes it easy for investors who do not want to track stock markets, mutual funds, or other types of market-linked products. It must be noted that the maturity period depends on the interest rate applicable when the account is opened.

Kisan Vikas Patra Interest Rate

The Kisan Vikas Patra interest rate is an important parameter while assessing the scheme. As per India Post, KVP offers an interest rate of 7.5% per annum, which is compounded annually. At this interest rate, the money invested doubles in 115 months, which is equal to 9 years and 7 months.

The interest rates for small savings schemes are revised by the government from time to time. Hence, it is important to check the interest rate applicable at the time of investment and not depend on the old interest rate. It is also important to note that the interest rate applicable to a KVP investment determines its maturity period.

Let us understand the KVP with a simple example.

Imagine an investor buys KVP worth ₹50,000 at the relevant rate and maturity period. If the investor holds the certificate until maturity, the investment value will increase to ₹1,00,000.

The table provides an overview of KPV’s doubling feature. One can confirm the actual maturity from the certificate and applicable government rules.

Kisan Vikas Patra Eligibility Criteria

The KVP scheme is available to eligible residents of India. As per the scheme rules, there are different types of account structures.

The following persons are eligible to invest in KVP:

• An adult resident of India may open an account in his/her name.
• An adult can open a KVP account in the name of a minor.
• A minor who has reached the age of 10 years may open an account in his/her name.
• A joint account is allowed by up to three adults.

NRIs, Companies, Trusts, Firms, and certain institutions are not eligible for accounts under the NSSS scheme as per the India Post regulations. When a minor account holder attains adulthood, a new account opening and KYC process must be completed.

How to Invest in Kisan Vikas Patra?

Eligible individuals can apply for KVP through the authorized post offices and other allowed means.

The general procedure is as follows:

Step 1: Visit any post office that offers small savings schemes and ask for the KVP application form.

Step 2: Fill in the required information as per the prescribed format.

Step 3: As per the requirement, investors have to submit the following documents:

• Aadhaar card
• PAN card
• Address proof
• Identity proof
• Photos
• KYC prescribed documents

At present, India Post mentions PAN card and Aadhaar card among the documents required for opening a savings scheme account.

Step 4: Deposit through the payment channel allowed at the post office.

Step 5: Once the application is submitted and the deposit is made, the investor receives the KVP certificate or the relevant account details. These documents should be kept safely, as they may be required for future transactions.

Features and Benefits of Kisan Vikas Patra

KVP has several benefits that may appeal to conservative investors.

• Government Guaranteed Savings Scheme: One of the key benefits of KVP is that it is a government-guaranteed small savings scheme. It is entirely different from investments where the returns depend on market performance.
• Pre-determined Gain Structure: Under KVP, there is a pre-determined gain structure. The investment grows according to the applicable interest rate and doubles at maturity. This predictability can make financial planning easier, particularly for investors working towards long-term goals.
• Annual Interest Compounding: Interest will be compounded annually under KVP. When investing for a long period, this compounding feature will be useful.
• No Limit on Maximum Investment: There is no restriction on the maximum investment amount. However, investors should consider asset allocation instead of investing all their money in a single investment scheme.
• Low Market Risk: KVP is not linked to the stock market performance. Hence, investors do not face the daily price fluctuations associated with equity investments.
• Transfer Facility: KVP certificates can be transferred subject to certain conditions and in accordance with the relevant rules. Transfer is possible between eligible parties and, in some cases, between joint parties and through legal order or any other permissible way. Transfer may also be possible from one post office to another.

Taxation on Kisan Vikas Patra

Individuals should understand the taxation criteria of KVP before investing:

• Tax Benefits: KVP does not offer tax deduction benefits under Section 80 of the Income-Tax Act 1961.
• TDS: There will be Tax Deducted at Source on maturity
• Tax on Interest: The interest earned on the KVP is fully taxable as “Income from Other Sources”.

Who Should Invest in Kisan Vikas Patra?

KVP can be an ideal choice for investors who value stability more than high market-linked returns.

The following investors can consider KVP:

• Risk-averse investors: Individuals who do not wish to have any exposure to equity market risk.
• Long-term savings: Investors who can invest their money for several years.
• Retired individuals: Retired investors can choose KVP as a relatively stable savings option for the long run.
• Investors seeking capital protection: Investors who prefer stability over aggressive growth can appreciate the product.

However, KVP may not suit investors who seek regular income, liquidity, and growth.

Kisan Vikas Patra Premature Closure Rules

KVP is a long-term investment scheme. Thus, premature closure is not allowed. According to the latest guidelines of India Post, KVP can normally be encashed prematurely after 2 years and 6 months.

KVP scheme also allows premature closure under certain conditions such as:

• Death of the account holder in a single account.
• Death of one or more account holders in a joint account.
• Forfeiture by a pledgee who is a Gazetted Officer.
• Premature closure as per court order.

The amount paid on premature closure will depend on the applicable rules and the duration for which the investment has been held. For instance, the scheme provides certain premature-closure values of the certificates encashed after the minimum qualifying period.

Thus, investors must not consider KVP as their emergency fund. Money that may be required for short-term expenses should generally be kept in more liquid instruments.

How to Transfer Kisan Vikas Patra?

KVP can be transferred in certain instances, subject to the applicable scheme guidelines.

A certificate may be transferred in permissible cases such as:

• Death of the depositor
• Judicial cases
• Transfer among eligible joint depositors
• Permissible instances according to the rules

Those who want to transfer their certificates should visit the concerned post office with the original certificate and other necessary documents.

Transfer from One Post Office to Another

If an investor moves to a new location, the KVP account or certificate can be transferred from one post office to another through the prescribed process.

The investor may have to provide:

• Application for transfer
• Original KVP certificate or the account statement
• Proof of identity and address
• Any other necessary documents

As of now, India Post has prescribed a transfer charge for certain account transfer facilities.

KVP vs NSC vs SCSS vs FD vs PPF: Key Difference

Things to Consider Before Investing in KVP

Despite the various benefits provided by KVP, it is not the right choice for all investors. One should consider the following factors before investing in KVP.

• Long lock-in period: Your money will remain locked up for more than nine years.
• Taxable interest: The interest generated from the investment is taxable and not treated as a tax-saving investment.
• No Section 80C deduction: KVP does not offer any tax deduction under Section 80C.
• Restricted liquidity: The closure of the investment is subject to certain conditions.
• Inflation risk: Even if your investment doubles in value, the real value of your maturity amount will depend on the inflation rate during the investment period.
• Opportunity cost: You should compare KVP with other investments that suit your financial goals.

FAQs

What is Kisan Vikas Patra (KVP)?

Kisan Vikas Patra is a government-backed savings scheme that offers guaranteed returns and helps investors double their money over a fixed period.

What is the current Kisan Vikas Patra interest rate?

The current Kisan Vikas Patra interest rate is around 7.5% per annum, compounded annually. The government revises the rate every quarter.

Where can I open a KVP account?

You can invest through any authorized Kisan Vikas Patra post office branch or selected public sector banks across India.

What is the minimum investment amount in KVP?

The minimum investment amount is ₹1,000, and there is no upper investment limit.

Is KVP eligible for tax benefits under Section 80C?

No, investments in KVP do not qualify for tax deductions under Section 80C of the Income Tax Act.

Can I withdraw money from KVP before maturity?

Yes, premature withdrawal is allowed only after the lock-in period of 2 years and 6 months or under special conditions such as the death of the account holder.

Who is eligible to invest in Kisan Vikas Patra?

Resident Indian adults, joint account holders, and guardians on behalf of minors can invest in KVP. NRIs and HUFs are not eligible.

Can KVP certificates be transferred?

Yes, KVP certificates can be transferred from one person to another or from one post office to another under specified conditions.