April 26, 2023
Post Office Saving Schemes 2023: Interest Rate & Tax Benefit
India Post is the largest nationalised postal chain in the country which started way back during the British era in Oct 1854. Initially focused on delivering mail (post), it started rolling out various other financial services, i.e., banking, insurance, and investments.
Not many people know, but one can now open a savings account in a Post Office branch and avail of the benefits of various savings schemes. Post office savings schemes contribute significantly to an Indian depositor's financial portfolio because of their country-wide availability, risk-free nature and comparatively high-interest rate earnings.
Also, accounts for financially challenged people from different walks of life who have relatively small deposits find it easier to deal with the Indian postal service as the depositors' money is backed by the government. Moreover, earning professionals can also take advantage of tax exemptions on the interest they receive from their investments.
In order to assist a depositor in India in building a well-balanced financial portfolio, let us examine in detail some of the post office saving schemes and the interest rates obtained on the investment.
Types of Post Office Savings Schemes Accounts
Listed below are some of the most popular saving schemes offered by Post Offices across the country:
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Post Office Savings Account (SB)
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National Savings Recurring Deposit Account (RD)
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National Savings Time Deposit Account (TD)
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National Savings Monthly Income Scheme Account (MIS)
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Senior Citizen Savings Scheme (SCSS)
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Public Provident Fund Account (PPF)
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Sukanya Samriddhi Account (SSA)
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National Savings Certificate (NSC)
Post Office Savings Account (SB)
One can open a savings account to earn a fixed interest rate, not just with a bank but also with a Post Office.
The Post office savings account is a government-backed post office scheme that offers an interest rate of 4% per annum on both joint and individual accounts. Here are some of the prominent features:
Type of Account
The post office savings bank offers:
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A single individual account
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Joint account (up to two adults)
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An account by a guardian or parent on behalf of a minor and of a person of unsound mind
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An account under the name of a minor above 10 years of age
Investment
Even with a minimal investment of INR 500, you can open a savings account in a post office. While there is no bar for the maximum monthly deposit, a minimum monthly balance of INR 50 and INR 500 must be maintained to keep the account active.
In the case of a non-cheque account, it is INR 50. Whereas for a cheque facility account, it is INR 500.
Withdrawal
A depositor may visit the closest branch if they want to withdraw the complete deposited quantity (above INR 50) and keep in mind to still maintain INR 500 as the minimum account balance.
The maximum limit for ATM withdrawal is INR 25,000 but bear in mind that the limit per transaction sits at INR 10,000. To keep the account active, an individual need to perform at least three transactions (withdrawal or deposit) in three financial years.
Return on Investment
The post offers a fixed interest rate of 4.0% per annum, which is higher than the interest rate on savings accounts provided by most banks in India.
The interest rate is compounded annually, i.e., when the financial year ends. This is when the calculated amount is credited to the account. The current post office interest rate for savings accounts has stayed the same since 2020.
Taxation
Interest up to INR 10,000 earned per financial year is tax-free. Depositors can claim this exemption under Section 80TTA of the Income Tax Act.
Other Benefits
As is the norm, the depositors are provided with a passbook, chequebook, and ATM card. The post office also provides login credentials to access their accounts via the internet or mobile banking. The risk level is fairly low in this scheme.
National Savings Recurring Deposit Account (RD)
In a post office recurring deposit scheme, one needs to deposit a fixed amount of money at regular intervals for five years. After 5 years, the depositor will receive the maturity amount (principal amount + interest earned) in a lump sum.
When it comes to the interest rate on this 5-year post office scheme, it stands at 5.80% per annum for joint as well as individual accounts. Let's look at some of the prominent features:
Type of Account
This type of recurring deposit (RD), like savings, allows account holders to open a single account, a joint account - where the account can hold three adults maximum - and a parent or guardian of a minor. They can also be a person of a disabled mind or a minor who is more than 10 years of age.
Investment
The minimum amount for monthly investment is INR 100, and above should be in multiple of INR 10.
There exists no no maximum limit on the monthly investments. The deposits can be made in cash or cheque. The account holder can also leverage mobile banking to invest easily and seamlessly.
Return on Investment
The current post office interest rate sits at 5.80% per annum for the RD account. The interest is compounded quarterly, i.e., calculated and credited once every three months to an account accordingly.
However, the interest earned is paid out when the maturity ends.
Maturity
Investors can invest in small amounts monthly for up to 60 months. If you're willing to incur interest with premature withdrawal or close the RD account, it is permissible after three years.
Taxation
About INR 1.5 lakh each year is tax exempted from the post office RD scheme under Section 80C of the Income Tax Act. However, the interest earned is subject to tax-cut as per the investor's income tax slab rate. The risk level is fairly low in this scheme.
National Savings Time Deposit Account(TD)
Post Office Time Deposit Account is one of citizens' most well-known post office savings schemes. One can now open a fixed deposit account in a post office for any of the four available tenures—1, 2, 3, or 5 years—similar to bank fixed deposit accounts.
The attractive interest rates offered by the post office for the fixed deposit scheme range from 5.50% to 6.70%, with the highest post office interest rate being 6.70% for a 5-year tenure time/ fixed deposit. Here are some of the features:
Type of Account
The lump sum amount invested by the depositor can be for a range of 1 to 5 years in this post office scheme and avail of a quarterly interest, which will be paid when maturity ends.
Investment
There is no maximum investment amount. However, there does exist a minimum investment cap that stands at INR 1,000.
Maturity
The maturity occurs in accordance with the deposits made for 1, 2, 3, and 5 years. After six months, premature withdrawal is permissible.
After one year, interest will be calculated with a 2.0% reduction for early withdrawal.
Taxation
As per Section 80C of the Income Tax Act, a depositor can file for an exemption from tax on their time deposit account in the post office that lasted 5 years. The risk is fairly low in this scheme as well.
Interest Rates
| Time Period | Interest Rate (%) per annum |
|---|---|
| 1 year | 5.5% |
| 2 years | 5.7% |
| 3 years | 5.8% |
| 5 years | 6.7% |
National Savings Monthly Income Account(MIS)
This scheme pays investors monthly interest, automatically deposited into their savings account at the same post office. The main features of this post office saving scheme are discussed below:
Type of Account
The Indian postal service offers the option of opening a single account, a joint account - where the account can hold three adults maximum - and a parent or guardian of a minor. They can also be a person of a disabled mind or a minor who is more than 10 years of age.
Investment
The minimum investment cap stands at INR 1,000 if you're looking to open an account, while the maximum balances for single and joint accounts stand at INR 4.50 lakh and INR 9 lakh, respectively.
Return on Investment
The post office scheme offers a 6.70% annual interest rate payable monthly.
Closure
A depositor can close the account after five years, counted right from when the account was first opened. Premature closure, however, is not permitted before one year.
Similarly, closure in a period between one year and three years will incur a fine of 2% of the principal, which drops to 1% for closure between three to five years.
There exists a provision through which nominees can claim the amount before maturity in the event of the depositor's demise.
Taxation
Any kind of interest earned on the deposit is subject to taxation, and the risk is fairly low in this scheme as well.
Senior Citizen Savings Scheme (SCSS)
As the name suggests, this 5-year tax-saving scheme is for senior citizens only. It allows senior citizens to receive quarterly interest payments on a lump-sum deposit.
This government-backed post office scheme currently gives 7.60% when it comes to interest rates. Take a look at some of the important features:
Type of Account
An individual above the age of 60, a retired person, or an employee between the ages of 55 and 60 can open a single account with the Indian Postal Service.
However, a joint account may only be opened with a spouse, with the full account balance promised to the first account holder.
Investment
While the minimum deposit shall be INR 1000, the maximum balance can limit up to INR 15 lakh in all SCSS accounts opened by a person.
Return on Investment
SCSS offers a 7.60% annual interest rate that is paid on a quarterly basis on March 31, June 30, September 30, and December 31.
The depositor's savings account may automatically receive the interest payment or via electronic clearance service.
Taxation
Suppose the interest earned falls below the stipulated amount of INR 50,000 in a financial year. In that case, a depositor may be eligible for a tax deduction under Section 80C of the Income Tax Act of 1961.
Closure
An SCSS account can be closed at the end of five years from the account opening date. The depositor will be entitled to no interest if the account is closed within the first year.
Similarly, a fine of 1.5% on the principal amount is levied if the account is closed over a period of one to two years. This drops to 1% for two to five years respectively.
There exists a provision through which nominees can claim the amount before maturity in the event of the depositor's demise. The risk is fairly low in this scheme.
Public Provident Fund Account (PPF)
PPF holds a record of having the maximum number of investors amongst all of the post office schemes. It is a fixed-income scheme backed by the government that offers a risk-free 7.10% interest rate yearly.
Type of Account
For single accounts, as well as the parent or guardian of a minor or a mentally ill person, the Indian postal service provides PFF with ease.
Investment
While INR 500 is the minimum required investment, the maximum balance limit is INR 1.50 lakh every financial year, which can be distributed across twelve deposits throughout the year.
Return on Investment
The interest rate for PPF is fixed at 7.10% annually, which is set on a quarterly basis by the Finance Ministry of India. After the fiscal year, the depositor's account is credited with the interest amount.
Taxation
For interest generated below INR 1.50 lakh per fiscal year, a depositor may claim a tax deduction under Section 80C of the Income Tax Act of 1961.
Maturity
The maturity period of a PPF fund is 15 years. However, the depositor is allowed to partially withdraw the balance after five years from the date of opening of the account. The risk is fairly low in this scheme as well.
Sukanya Samriddhi Account (SSA)
SSA is one of the post office saving schemes launched by the Government of India for the financial betterment of the girl child.
The scheme allows parents to save money for their female child's future education and marriage expenditures while providing a favourable investment return.
Type of Account
A guardian can open an SSA account in the name of a girl child under the age of ten or can be extended to accommodate two girls in a household and further extended to two accounts in the case of twins/triplets.
Investment
A minimum investment of INR 250 is mandatory. A maximum investment can be made up to INR 1.50 lakh for a single financial year, and this can be distributed across more than one installment or in one single sum.
Return on Investment
The SSA offers 7.60% as the annual interest rate, which the Finance Ministry of India sets on a quarterly basis. After the fiscal year, the depositor's account is credited with the interest amount.
Taxation
For interest generated below INR 1.50 lakh per fiscal year, a depositor may claim a tax deduction under Section 80C of the Income Tax Act of 1961.
Maturity
The interest in the Sukanya Samriddhi Account matures after 15 years. After the girl reaches the age of 18, partial withdrawals of up to 50% of the amount are permitted. The risk levels are very low in this scheme.
National Savings Certificate (NSC)
A 5-year NSC plan is one of the few post office saving schemes available to all citizens. The scheme has a sovereign guarantee from the Government of India and offers a 6.80% interest rate per annum.
Type of Account
NSC offers a joint account that can accommodate up to three individuals, a single individual account, a parent or guardian of a juvenile or person of unsound mind, and even for a minor over the age of ten.
Investment
A non-capped investment with a minimum of INR 1,000.
Return on Investment
The NSC offers a 6.80% interest rate compounded yearly and payable at maturity.
Maturity
The deposit will mature after five years from the date of deposit.
Taxation
Section 80C of the Income Tax Act exempts interest from taxation. The risk levels are fairly low for this scheme as well.
Conclusion
Although investments in post office savings schemes are backed by the Government of India, investing money without understanding the prospects has its own set of risks.
The details above will help you choose the right post office scheme to build a well-diversified investment portfolio.
FAQs
How to Apply for a Saving Scheme in Post Office?
The instructions below will help you apply for a post office savings scheme.
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Visit the nearest post office.
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Get the required account opening form from the post office. However, you can also get the form from the Indian Post Office's official website.
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Fill out the form with the necessary information and send it with the KYC proof. You will also be needed to provide further documentation.
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Complete the enrollment process by depositing the scheme's deposit amount.
What documents are required to open a post office savings account?
Customers must submit the following documentation with their application for a savings account:
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Address proof can include a driver's license, voter ID card, Aadhaar card, phone or utility bill, and so on.
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Passport, Aadhaar card, driver's license, voter ID, and other forms of identification are acceptable.
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2 recent passport-sized photos.
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Form for opening a savings account at the post office.
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A minimum cash amount is necessary to create a savings account.
Is it possible to transfer a savings account from one post office to another?
Yes, you can transfer your savings account from the present post office to the one nearest to your new home if you are moving. To have the account transferred to your chosen post office, you must submit the transfer form SB 10(b) at the present post office holding your savings account.
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