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During the festive season, when Diwali bonus or extra cash comes into the hands of salaried employees and businessmen, the biggest question is that how should this money be used so that it does not get wasted in unnecessary expenditure and can remain safe and also give good profits. Most people either leave the Diwali bonus amount of ₹ 1 lakh or more in a savings account, where a nominal interest of 2.5% to 3% is available, or invest it in gold, silver or risky stock market. If you want to invest your hard-earned money safely for just 1 year without any market risk and want to get guaranteed returns on it till Diwali next year, then India Post’s 1-Year Time Deposit (National Savings Time Deposit Account – TD) scheme proves to be the best and most reliable option. Currently, this scheme run by the Central Government is offering an excellent annual interest rate of 6.9%. Its biggest attraction is its Quarterly Compounding formula, which offers more effective returns than the typical 1-year FDs of typical commercial banks.
The biggest strength of the Post Office Time Deposit Scheme is its interest calculation methodology. In this scheme, interest is calculated every three months (quarterly) and gets added to the principal amount, while it is paid at the time of maturity or on an annual basis. If you deposit ₹1,00,000 (Rs 1 lakh) of your Diwali bonus in a 1-year post office time deposit, the effective annual yield when quarterly compounding at the rate of 6.90% is applied comes to around 7.08%. According to this, after completion of 1 year you will get net interest profit of approximately ₹ 7,081. On maturity, a total amount of ₹ 1,07,081 will be directly transferred to your account by the government. If a family has received a bonus of ₹2 lakh and they invest it in this scheme, their net income in 1 year will be ₹14,161 and the total return will be ₹2,14,161. Whereas on a lump sum deposit of ₹ 5 lakh, a net profit of approximately ₹ 35,403 is earned in 1 year, due to which the total maturity amount becomes ₹ 5,35,403.
When it comes to short term investment i.e. 1 year, most of the big public and private banks of the country (like SBI, PNB, HDFC and ICICI Bank) are offering interest rates generally between 6.50% to 6.80% on 1-year FD to common citizens. In contrast, the Post Office 1 Year Time Deposit Scheme offers a flat rate of 6.90%. Apart from the difference in interest rates, the most important aspect is the safety of capital. If you deposit money in a commercial bank, only an amount up to ₹5 lakh is legally insured under DICGC as per RBI rules. On the other hand, the Government of India’s direct Sovereign Guarantee applies to your entire capital deposited in the post office. This simply means that the Government of India itself guarantees 100% return of your principal amount of ₹ 1 lakh and the entire interest of ₹ 7,081 received on it in the post office, due to which the risk of any kind of default becomes zero.
The eligibility conditions for investing the Diwali bonus amount have been kept very flexible and easy. Any citizen of India, who is 18 years of age or above, can open a Single Account by visiting their nearest post office. If husband and wife wish to jointly invest their joint bonus, there is also a ‘Joint Account’ facility available for up to 3 adults. Apart from this, parents can also open a self-operated account in the name of their children below 10 years of age or in the name of a minor above 10 years of age. The minimum investment limit starts at just ₹1,000 and thereafter any amount can be deposited in multiples of ₹100. There is no limit on maximum investment in this post office scheme, that is, if you have received a bonus of ₹ 1 lakh from the company or an incentive of ₹ 10 lakh, you can invest the entire amount in this scheme for 1 year without any restriction.
While investing money during festivals, many people have this apprehension that what will happen if money is needed for some emergency work in the middle of the year? The rules of post office time deposit are very clear in this matter. Premature closure is not allowed for the first 6 months from the date of account opening. However, if after completion of 6 months and before 1 year you suddenly have a dire need of money, you can close the account. In such a situation, instead of 6.9% interest on time deposit, you are paid interest at the applicable rate of Post Office’s General Savings Account (about 4% per annum). Apart from this, if you do not want to break your FD, you can also avail instant loan facility at very low interest rates from the post office or any bank by pledging this 1-year time deposit receipt of yours.
It is also important to understand the income tax rules regarding returns on Diwali bonus. Under the Income Tax Act, Section 80C exemption is available on 5-year post office FD, but this deduction is not applicable on 1-year time deposit. The interest of ₹7,081 earned from this 1 year plan is added to your annual gross income as ‘Income from Other Sources’ and the investor has to pay tax on it as per his applicable tax slab. However, the biggest relief for small investors is that the post office generally does not deduct TDS directly on time deposit interest like banks. This means that on completion of 1 year, you get the entire amount in your hand at the time of maturity without any deduction and you can declare it voluntarily while filing your ITR at the end of the financial year.
If you want to put your bonus in the right direction this Diwali, the account opening process is very easy. For offline mode, you can go to your nearest post office and fill the Time Deposit Form (SB-3). Along with this, self-attested copies of your Aadhar Card, PAN Card, two passport size photographs and a check of ₹ 1 lakh have to be submitted. Whereas if you already have a savings account in the post office and you use India Post Payments Bank (IPPB) or internet and mobile banking of the post office, then you do not even need to go to the post office. You can directly login to your mobile app and go to the ‘Department of Posts’ or ‘Term Deposit’ section, select ‘1 Year Time Deposit’ and enter an amount of ₹1,00,000 and once submitted, your digital e-TD account will be activated immediately, making your hard-earned money ready to be withdrawn with secure profits in 1 year.