Postal Services in India
India possesses the largest postal network in the world with 155,000 post offices spread all over the country as on March 31, 2001, of which 89 per cent are in the rural sector. Post offices in India play a vital role in the rural areas. They connect these rural areas with the rest of the country and also provide banking facilities in the absence of banks in the rural areas. Post Offices offer various types of accounts. These are:
Post Offices also offer various saving and tax saving instruments such as:
- Savings Account
- Recurring Deposit Account
- Monthly Income Account
- Time Deposit Account
- National Savings Certificate
- Public Provident Fund
- Kisan Vikas Patra
Post Office Saving Account
Post office saving account is similar to a savings account in a bank. It is a safe instrument to park those funds, which you might need to liquidate fully or partially at very short notice. Post office savings accounts are especially suited for those living in rural and semi-rural areas where the reach of banks is very limited.
The account can be opened at any post office with a minimum balance of Rs. 20. Maximum of Rs. one lakh for single account holder and Rs. two lakhs for joint account holders can be deposited. There is no lock-in or maturity period. The amount can be withdrawn anytime subject to keeping a minimum balance of Rs. 50 in simple account and Rs. 500 for cheque facility accounts.
Rate of interest is decided by the Central Government from time to time. Interest is calculated on monthly balances and credited annually. Income tax relief is available on the amount of interest under the provisions of section 80L of Income Tax Act.
Post Office Recurring Deposit Account
Recurring deposit account is a systematic way of saving money. The scheme is meant for those investors who want to deposit a fixed amount regularly on monthly basis in order to get a tidy sum after 5 years on the maturity of the account.
The Recurring deposit account can be opened at any post office Period of maturity of account is 5 years. Sixty equal monthly deposits shall be made in an account in multiples of Rs. five subject to a minimum of ten rupees.
Premature closure of accounts is permissible after expiry of three years. In case of premature closure of account, the interest at the rate applicable to post office savings account shall be payable.
Post Office Monthly Income Account
Post Office Monthly Income Account is meant for those investors who want to invest a lump sum and earn interest on monthly basis for their livelihood. The scheme is, therefore, a boon for retired persons.
The account can be opened by a single adult or 2-3 adults jointly. Period of maturity of an account is six years. Only one deposit can be made in an account. Minimum deposit limit is Rs 1000. Maximum deposit limit is Rs. 3 lakhs in case of single account and Rs. 6 lakhs in case of joint account.
Interest @ 8% per annum is payable monthly. In addition, bonus equal to 10% of the deposited amount is payable at the time of repayment on maturity. Premature closure facility is available after one year subject to condition. Income tax relief is available on the interest earned as per limits fixed vide section 80L of Income Tax, as amended from time to time.
Post Office Time Deposit Account
Post office time deposit account is just like the bank fixed deposit account. These time deposits are meant for those investors who want to deposit a lump sum for a fixed period. Time deposit account can be opened at any post office with a minimum deposit of Rs. 200. There is no maximum limit for the account.
The amount can be deposited for 1year, 2year, 3year, and 5years. The deposited amount is repayable after expiry of the period for which it is made viz: 1 year, 2 years, 3 years or 5 years.
Interest is calculated on quarterly compounding basis, and is payable annually. Rate of interest varies according to the period of the deposit and is decided by the Central Government from time to time. Income tax relief is available on the amount of interest under the provisions of section 80L of Income Tax Act.
Premature withdrawals from all types of post office time deposit accounts are permissible after expiry of 6 months with certain conditions.
National Savings Certificate
National Savings Certificate, popularly known as NSC, is a time-tested tax saving instrument that combines adequate returns with high safety.
National Savings Certificate can be purchased by the following:
- An adult in his own name or on behalf of a minor,
- A minor,
- A trust
- Two adults jointly,
- Hindu Undivided Family
National Savings Certificates are available in the denominations of Rs. 100, Rs 500, Rs. 1000, Rs. 5000, & Rs. 10,000. There is no maximum limit on the purchase of the certificates.
Period of maturity of a certificate is six years. Presently, maturity value of a certificate of Rs. 100 denomination is Rs. 160.10. Maturity value of a certificate of any other denomination is at proportionate rate. Premature encashment of the certificate is not permissible except at a discount in the case of death of the holder(s), forfeiture by a pledgee and when ordered by a court of law.
Interest accrued on the certificates every year is liable to income tax but deemed to have been reinvested. Income Tax rebate is available on the amount invested and interest accruing under Section 88 of Income Tax Act, as amended from time to time. Income tax relief is also available on the interest earned as per limits fixed vide section 80L of Income Tax, as amended from time to time.
Public Provident Fund
Public Provident Fund, popularly known as PPF, is a savings cum tax saving instrument. It also serves as a retirement planning tool for many of those who do not have any structured pension plan covering them.
Public Provident Fund account can be opened at designated post offices throughout the country and at designated branches of Public Sector Banks throughout the country. The account can be opened by an individual in his own name, on behalf of a minor of whom he is a guardian, or by a Hindu Undivided Family.
Minimum deposit required in a PPF account is Rs. 500 in a financial year. Maximum deposit limit is Rs. 70,000 in a financial year. Maximum number of deposits is twelve in a financial year.
The account matures for closure after 15 years. Account can be continued with or without subscriptions after maturity for block periods of five years. Premature withdrawal is permissible every year after completion of 5 years from the end of the year of opening the account.
Loans from the amount at credit in PPF amount can be taken after completion of one year from the end of the financial year of opening the account and before completion of the 5th year.
Interest at the rate notified by the Central Government from time to time, is calculated and credited to the accounts at the end of each financial year. Presently, the rate of interest is 8% per annum.
Income Tax rebate is available "on the deposits made", under Section 88 of Income Tax Act, as amended from time to time. Interest credited every year is tax-free.
Kisan Vikas Patra
Kisan Vikas Patra (KVP) is a saving instrument that provides interest income similar to bonds. Amount invested in Kisan Vikas Patra doubles on maturity after 8 years & 7 months.Kisan Vikas Patra can be purchased by the following:
- An adult in his own name, or on behalf of a minor,
- A minor,
- A Trust,
- Two adults jointly.
Kisan Vikas Patra are available in the denominations of Rs 100, Rs 500, Rs 1000, Rs 5000, Rs. 10,000 & Rs. 50,000. There is no maximum limit on purchase of KVPs. Premature encashment of the certificate is not permissible except at a discount in the case of death of the holder(s), forfeiture by a pledgee and when ordered by a court of law.
No income tax benefit is available under the Kisan Vikas Patra scheme. However, the deposits are exempt from Tax Deduction at Source (TDS) at the time of withdrawal.