Post Office Savings Account, 5-Year Post Office Recurring Deposit Account (RD), Post Office Time Deposit Account, Post Office Monthly Income Scheme Account (MIS), Senior Citizen Savings Scheme (SCSS), 15-Year Public Provident Fund Account (PPF), National Savings Certificates (NSC), Kisan Vikas Patra (KVP) and Sukanya Samriddhi Accounts for the girl child are some of the savings schemes offered by the Department of Posts at post offices. Many of these schemes also offer the advantage of income tax benefits to investors.
Here are some of the schemes offered at post offices which come with income tax benefits:
Public Provident Fund (PPF)
Apart from many banks, post offices also offer the popular tax-saving scheme PPF, which qualifies for EEE (exempt-exempt-exempt) benefits under tax laws. That means the contribution, interest and maturity proceeds all are tax-free. PPF deposits are eligible for tax deductions under Section 80C of Income Tax Act – a maximum of Rs. 1.5 lakh can be claimed in one financial year.
The maturity period of PPF accounts is 15 years and it can be extended in blocks of five years. Loan facility and partial withdrawal facilities are also allowed. Premature closure is allowed only after the account has completed five financial years but under specific conditions. The government has proposed to allow premature closure of Public Provident Fund (PPF) accounts. Currently, PPF accounts offer an interest rate of 7.6 per cent (January-March quarter). The interest rate on small savings schemes such as PPF, Senior Citizen Savings Scheme and Sukanya Samriddhi Accounts, which are benchmarked to bond yields, are revised on a quarterly basis.
Sukanya Samriddhi Scheme
Sukanya Samriddhi Account is a small savings scheme exclusively for the girl child. A parent or legal guardian can open an account in the name of the girl child until she attains the age of ten years. Apart from post offices, the Sukanya Samriddhi account can be opened in some designated banks.
Deposits made into the Sukanya Samriddhi Account as well as the proceeds and maturity amount are fully exempted from income tax. The annual deposit of up to Rs. 1.5 lakh qualifies for tax benefit under Section 80C. The maximum amount that can be deposited in a year is Rs. 1.5 lakh. Sukanya Samriddhi Account currently fetches an interest rate of 8.1 per annum (January-March quarter).
5-Year Post Office Time Deposit
Post offices offer deposits with tenure of one year, two years, three years and five years, according to India Post. The investment under the five-year term deposit qualifies for the benefit of Section 80C of the Income Tax Act, 1961 from April 1, 2007, according to India Post. Under current income tax laws, investment in income tax-saving FDs can help you claim deductions for investments up to Rs. 1.5 lakh a year under Section 80C of the Income Tax Act. Currently, the five-year Post Office Term Deposit offers an interest rate of 7.4 per cent.
Senior Citizen Savings Scheme (SCSS)
Senior Citizen Savings Scheme is an investment option for individuals above the age of 60 years. An individual aged 55 years or more up to 60 years who has retired on superannuation or under VRS can also invest in Senior Citizen Savings Scheme. Currently, it offers an interest rate of 8.3 per cent. The maturity period if five years and an individual cannot invest more than Rs. 15 lakh under this scheme. Investment under this scheme qualifies for the benefit of Section 80C of the Income Tax Act but interest earned is taxable. TDS is deducted at source on interest if the interest amount is more than Rs. 10,000.
National Savings Certificates (NSC)
The Five-Year National Savings Certificate currently offers an interest rate of 7.6 per cent. The interest is compounded annually but is payable at maturity. This means every Rs. 100 invested in NSC grows to Rs. 144.23 after five years. There is no maximum limit for investment in NSC and it has a maturity period of five years. Investment of up to Rs. 1.5 lakh in NSC can qualify for income tax deduction under Section 80C of the Income Tax Act. In addition, interest accrued yearly on NSC is deemed to be reinvested on behalf of the investor and qualifies for deduction under Section 80C within this total limit. But since the interest accrued on NSC in the last year of the certificate’s term is not reinvested, it cannot be claimed as a deduction from taxable income under Section 80C. Therefore, the interest earned in the last year is added to the income of the investor in the year of accrual.
However, since the interest accrued on NSC in the last year of the certificate’s term is not reinvested, it cannot be claimed as a deduction from taxable income under Section 80C. Therefore, the interest earned in the last year is added to the income of the investor in the year of accrual.
Post Office Savings Account
This savings account facility offered by Post Office give an interest of 4 per cent per annum. Under Section 80TTA, interest income earned from savings accounts (including Post Office Savings Account) up to Rs. 10,000 is tax deductible from the gross income.
It is to be noted that senior citizens will get a higher interest income exemption limit on deposits in banks and post offices, including recurring deposits, from April 1, according to changes proposed in Budget 2018. Currently, a deduction up to Rs. 10,000 is allowed under Section 80TTA of the Income Tax Act to an individual in respect of interest income from a savings account. Under the tax laws, a new section, Section 80TTB, is proposed to be inserted to allow a deduction up to Rs. 50,000 in respect of interest income from deposits held by senior citizens. However, no deduction under Section 80TTA is allowed for senior citizens.
Interest income earned from savings bank account (whether from savings account in a bank or a post office) is included in your income. However, under Section 80TTA, a corresponding deduction of such interest income up to Rs. 10,000 is allowed and hence it does not form part of the income to this extent.