Post Office Fixed Deposit Scheme

The post office in India offers different types of saving schemes for investors who are looking for fixed-income instruments. These schemes, offered by the post office, are backed by the Government of India and are, therefore, secured.

Being secured deposits that offer guaranteed interest, post office schemes are preferred by many investors. One such deposit scheme issued by the post office is the fixed deposit scheme. 

Let’s understand the scheme and have a look at its aspects in detail –

What is the Post Office Fixed Deposit Scheme?

The Post Office Fixed Deposit Scheme is called the National Savings Time Deposit Account. Under this scheme, you can deposit a lump sum amount of money for a fixed period and at a fixed rate of interest. When the deposit tenure is over, you get a lump sum amount on maturity.

Features of Post Office Fixed Deposit Scheme

The salient features of the Post Office Fixed Deposit Scheme are as follows –

• There are four different account options to choose from depending on the term for which you want to deposit the money. You can choose to open the fixed deposit account for 1 year, 2 years, 3 years, or 5 years
• You can nominate an individual to receive the proceeds from the account after your death
• You can transfer your fixed deposit account from one post office to another
• There is no limit on the number of accounts that you can open in your name
• You can open the Post Office Fixed Deposit Account online through a mobile banking  facility or Intra Operable Net banking facility offered by the post office

Eligibility Criteria of Post Office Fixed Deposit Scheme

To open a Post Office Fixed Deposit Account, the following eligibility criteria should be fulfilled-

• An individual adult can open the account in his/her name
• A joint account can be opened in the name  of two or three individuals
• Minors aged 10 years or above can open the account in their name
• You can also open the account on behalf of a minor or a person of unsound mind. If the account is opened on behalf of the minor, the minor should convert the account in his/her name after attaining the maturity age
• The minimum amount required to open the account is INR 1000. There is, however, no maximum limit of deposit
• The account can be opened by depositing the money through cash or cheque. In case of deposits done with a cheque, the account opening date would be the date on which the cheque is realized by the post office

Interest on Post Office Fixed Deposit Scheme

The interest payable on the Post Office Fixed Deposit Scheme depends on the term of the deposit that you choose. The interest is calculated and paid every year. If you do not withdraw the annual interest credited to you, no additional interest would be paid on such an amount. If you want, you can also request the post office to credit annual interest earned on your fixed deposit to your savings account.

The rate of interest applicable to the Post Office Fixed Deposit Scheme is as follows –

Premature Withdrawal of Post Office Fixed Deposit Scheme

Premature withdrawal of Post Office Fixed Deposit Scheme is not available within the first 6 months of opening the account. Thereafter, if you withdraw your deposit after 6 months but before the completion of 12 months of investment, the interest payable on the deposit would reduce. In such cases, the interest rate applicable to the Post Office Savings Account would be paid.

Tax Benefit on Post Office Fixed Deposit Scheme

Tax benefit on the Post Office Fixed Deposit Scheme can be availed both on the investment as well as on the returns earned. 

Let’s understand how –

1. Tax Benefit on Investment

If you choose to invest in the 5-year term fixed deposit scheme, the amount that you invest would be allowed as a deduction from your taxable income. This deduction is available up to a limit of INR 1.5 lakhs under Section 80C of the Income Tax Act, 1961. However, if you choose other deposit tenures, no tax benefit would be allowed on the invested amount. The invested amount would be a part of your taxable income and would be taxed at your income tax slab rates.

2. Tax Benefit on Interest Earned

Senior citizens i.e., those who are aged 60 years and above, can enjoy tax benefits on the interest earned from the Post Office Fixed Deposit Scheme. Interest earned up to INR 50, 000 can be claimed as a tax-free income under the provisions of Section 80 TTB of the Income Tax Act, 1961. For individuals below 60 years of age, however, interest earned from the Post Office Fixed Deposit Scheme would be taxable. The interest would be added to their income and taxed at their income tax slab rates.

There is also a TDS deduction from interest income of the Post Office Fixed Deposit Scheme. If the interest income earned exceeds INR 40, 000 (INR 50, 000 for senior citizens) from all the fixed deposit schemes held by individuals, TDS would be deducted @10% from the interest income if you have provided your PAN card details. If the PAN Card details are not provided, the TDS deduction rate would increase to 20%. However, due to the COVID pandemic, the Government has reduced the TDS rate to 7.5% for interest earned up to 31st March 2021. To avoid TDS deduction, you can submit Form 15G or 15H to the post office.

Benefits of Post Office Fixed Deposit Scheme

The following are the main benefits which can get from investing in the Post Office Fixed Deposit Scheme – 

1. Guaranteed returns on investments
2. Protection from market volatility
3. No chance of losing the invested amount
4. Tax benefit on investment if you choose the 5-year deposit tenure
5. Tax benefit on interest-earning up to INR 50000 if you are a senior citizen
6. Safe investment avenue as the scheme is backed by the Government

So, understand the various aspects of the Post Office Fixed Deposit Scheme and then invest in it to earn guaranteed returns on your investments.