Post Office Time Deposit Scheme - Know Everything!

Post Office Time Deposit Account (POTD) is one of the most well-known investment schemes offered by the India Post. While the scheme is open to all individuals, it is particularly popular in rural and remote areas of the country that are relatively under-banked and have limited access to investment products.

The Indian Finance Ministry reviews the interest rates on the scheme in the beginning of every quarter of the financial year. The interest rate is decided based on the yield on government securities and usually has a spread over the government-sector yield.

In case you do not wish to withdraw the interest annually, you can instruct the post office to redirect it to your post office savings account, that earns 4% interest p.a. However, this cannot be done in case of POTD with 1 year tenure. Alternatively, you may also choose to redirect this interest to a 5-year recurring deposit account in the same post office or bank in lieu of payment of 12 monthly installments. In this case, the depositor will be required to give a fresh application to the office or bank before the due date on which interest falls due for payment.

Features of Post Office Time Deposit Scheme

Mentioned below are the key features of the post office time deposit scheme-

1. Deposits under post office time deposit schemes can have tenure of 1, 2, 3 or 5 years, and only one deposit can be made in one account
2. This post office scheme promises assured returns on the account holder’s investments
3. The time deposit accounts can be easily transferred from one post office to another
4. Time deposit accounts can be either solely operated or jointly held
5. Account holders can extend the duration of a time deposit account upon its maturity
6. If proceeds of a mature account are not withdrawn, the account will be automatically renewed for the original deposit tenure at applicable interest rates as on the date of maturity
7. There is no cap on the number of time deposit accounts that can be opened
8. Minimum deposit required to invest in the Post Office Time Deposit scheme is Rs.200. However, it must be noted that the amount to be deposited should be in multiples of 200 only. If not, the amount in multiples of 200 will be retained in the account and the balance will be refunded without any interest
9. The central government has recently authorized all public sector banks and some private banks like ICICI Bank, Axis Bank, and HDFC Bank to allow investors to open POTD accounts
10. Investors may consider POTD investments as alternates to Bank Fixed Deposits

Eligibility Criteria

In order to be eligible to open a Post Office Time Deposit Account, the following criteria must be taken into account-

1. All resident Indians can open and operate this account either singly or jointly
2. A minor aged 10 years or more can open and also operate this account
3. A parent/guardian can open a Post Office Time Deposit account on behalf of a minor
4. Non-resident Indians are not allowed to open a Post Office TD account

The following groups/funds are not allowed to avail the Post Office Time Deposit Scheme-

1. Institutional account holders
2. Trust funds
3. Regimental funds
4. Welfare funds

Advantages of Post Office Time Deposit Schemes

The following are key benefits of investing in a Post Office Time Deposit account:

1. Post Office Time Deposit Scheme provides guaranteed return on investment
2. 5 Year Time Deposits qualify for tax deduction under Section 80C of the Income Tax Act
3. Even minors aged 10 years and above can operate the account by themselves
4. Nomination facility is available
5. The investments are quite flexible and be made with an amount as low as Rs. 200 and with no maximum investment limit
6. Accounts can easily be transferred from one post office to another
7. Premature withdrawal of deposits is allowed
8. POTD investments are considered safer than FDs as the principal amount invested and the interest earned are backed by sovereign guarantee
9. There is no cap on the maximum number of accounts that can be opened in any post office

Documents Required

In order to open a term deposit with India Post, you must furnish the following documents-

1. SB3
2. SB13 (pay-in slip)
3. Specimen Signature Slip

Taxation Benefits under POTD

Small saving investments in post offices do not involve any tax deduction at source (TDS). It must be noted that the interest earned on these investments is added to the depositor’s total annual income in the year of receipt and is liable to be taxed as per the tax rate of the investor.

However, deposits made for the 5-year tenure are eligible for tax benefits under Section 80C of the Income Tax Act.

Conclusion

Investors who are looking for alternatives to Bank Fixed Deposits may consider investing in Post Office Time Deposit Schemes as the latter offers higher interest rates than the ones offered in fixed deposits. Additionally, if you are an ultra conservative investor with zero tolerance of risk and assured returns, you may choose to invest in these schemes.

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Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.