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Amidst the uncertainty of the stock market and the ups and downs of mutual funds, even today a large section of the country remains in search of such investment schemes where their principal amount is 100 percent safe and they get a fixed and guaranteed return. The 5-year National Savings Time Deposit (POTD) of the Indian Postal Department i.e. India Post is one such highly reliable government savings scheme, which provides investors with better returns than bank FDs and sovereign guarantee of the Government of India. From Hazratganj GPO in Uttar Pradesh’s capital Lucknow to post offices in rural areas of the country, this scheme has become very popular among middle class families, retired employees and employed people. The biggest strength of this scheme is that every penny deposited in it gets complete protection from the Central Government, due to which there is no fear of market risk. If an investor deposits a lump sum of Rs 2 lakh in this scheme today, then on completion of the tenure of 5 years, he gets a direct profit of about Rs 90 thousand only in the form of interest.
The post office’s 5-year time deposit scheme is currently offering annual interest at the rate of 7.5 percent. The biggest advantage of this scheme is its compound calculation method. Even though interest is paid on an annual basis, interest is calculated every quarter i.e. Quarterly Compounding. Due to interest being added to the principal on quarterly basis, the real return of the investor increases significantly compared to simple interest. If we understand the mathematical calculation, then the total maturity amount for 5 years (total 20 quarters) with 7.5 percent annual interest rate on the principal amount of Rs 2,00,000 comes to Rs 2,89,990. This simply means that during the lock-in period of 5 years, the investor gets a profit of Rs 89,990 only in the form of net interest without any extra effort. This fixed return is very suitable for those who want to build a big fund in a fixed time without taking any risk on their capital.
Post office time deposit schemes are available for different tenures of 1 year, 2 years, 3 years and 5 years, but the most special aspect of the 5 year time deposit is its tax benefits. Under Section 80C of the Income Tax Act 1961, investments made in 5-year time deposits get the benefit of tax deduction of up to Rs 1.50 lakh in a financial year. This means that taxpayers choosing the old tax regime get direct tax savings on investments. However, investors should note that the interest received from this scheme adds to the total annual income of the investor and is taxable as per his/her respective tax slab. If the annual interest exceeds the limit, TDS is deducted as per rules, which senior citizens can avoid TDS deduction by submitting Form 15H and general citizens can avoid TDS deduction if their total income is less than the taxable limit.
Another great feature of this post office savings scheme is that the entry conditions are very simple and flexible. Any Indian citizen can open a time deposit account with a minimum amount of just Rs 1,000, and thereafter the desired amount can be deposited in multiples of Rs 100. The most important thing is that there is no maximum limit for investment in this scheme. An investor can deposit a lump sum amount of Rs 2 lakh, Rs 5 lakh, Rs 10 lakh or even more as per his capacity and avail guaranteed interest at a fixed rate of 7.5% per account. Additionally, a person can open any number of time deposit accounts in different post offices. This account can be easily operated by a single individual, a joint account with three adults, or in the name of a minor child by his/her parent or legal guardian.
It is very easy to open a 5-year time deposit account in the post office. For this, the investor has to go to his nearest post office and fill the prescribed application form for National Savings Time Deposit. Along with this, necessary KYC documents like self-attested copy of Aadhar Card and PAN Card for identity proof, proof of current address and two passport size color photographs have to be submitted. If the investor already has a savings account in the post office, then he can give a standing instruction to transfer the annual interest directly to his savings account, so that the interest received every year can be used for regular expenses. After completion of the 5 year period, the investor can extend the account for the next 5 year block or can transfer the entire amount to his account.