What is Post Office Fixed Deposit?

Post Office Fixed Deposit is an investment that can be deposited in post office to earn interest. The time period for these fixed deposits are one year, two years, three years and five years. This scheme of post office is utilized more as compared to bank deposits in rural areas. The interest rates under this scheme currently varies from 6.9% to 7.7%. By investing in this deposit scheme one can get taxation benefits under section 80C. The interest that is paid is charged with Tax Deduction at Source (TDS).


Tax benefits of Post Office Fixed Deposit

The major benefit of post office deposit scheme is saving tax. Tax deductions are allowed under section 80C of the income tax act for the interest from post office deposit scheme. The deductions are only allowed on the investments if they are made for time period of five years. The maximum of Rs 1,50,000 can be claimed as a tax deduction by the taxpayer under this section. The interest that is paid in this scheme is subject to tax deduction at source. If TDS is not deducted it is to be clearly declared in the return of income filed by the taxpayer.


Tax benefit of Post Office Fixed Deposit for senior citizens

For senior citizens of India, the interest received from post office fixed deposits will be tax exempt. The interest income that is exempt from taxation for them is maximum upto Rs. 50,000 under section 80TTB of the income tax act.


Procedure to invest in Post Office Fixed Deposit

Post Office Fixed Deposits is mostly adopted by those individuals who are conservative in regard to risk of their investments. The individuals who gives more importance to safety of the investment and are against of taking risk, this type of investment is ideal for them. The rates of this fixed deposit is sometimes higher than that of bank fixed deposits. The rate of interest in this scheme depends on the time period the investor choose. The longer the time period the higher will be its rate of interest. So the major decision for opening a fixed deposit in post office is to decide the amount as well as the time period for which the amount is to be invested in the post office. The interest somewhere comes in between a bank fixed deposit rate and a company’s fixed deposit rate.

In the era of internet, the application of Post Office Deposit Scheme can be done online easily. The steps of application of this scheme offline is as follows:

  • Selection of post office where you want to open the post office deposit account.
  • Fill the opening form of fixed deposit in the branch.
  • Furnish relevant documents such as address proof, ID proof and so on and complete the formalities.
  • Decide the amount to be deposited and the time period for which you want to open a fixed deposit account.

Interest Rates in Post Office Fixed Deposit

Government keeps on revising the rate of interest for post office fixed deposit scheme. The interest rate that is effective from first january 2019 on the basis of yield on Government securities are as follows:

Time period  Rate of interest (%)
One year
Two years
Three years
Five years
6.9%
6.9%
6.9%
7.7%

Eligibility to invest in Post Office Fixed Deposits

Any individual who is a resident of India can open a fixed deposit account in post office. Non Resident Indians are not allowed to open a fixed deposit account in post office. The depositor can open a fixed deposit account by cash or cheque. The date on which the cheque is realized is the date of the opening of the account in Government records. This investment features low risk and steady incomes. This also gives protection to the capital and ideal for people who are retiring or retired.


Characteristics of Post Office Fixed Deposit

The post office fixed deposit is one of the most safe and protected ways of making investments. The major features of this deposit scheme are:

  • The scheme is very flexible in terms of amount to be deposited.The minimum amount to open a post office fixed deposit account is Rs.200 and there is no maximum limit for the same. One can even convert a single account into joint account easily and vise-versa.
  • No limits to the number of accounts have been set to open fixed deposit accounts at the post office.
  • The account can be opened in the name of the minor and operated by the parents or guardians.
  • The account can be transferred to one post office to the other.
  • Nomination of another person is allowed while opening a post office fixed deposit account or with an existing account.
  • The interest rates are mostly higher than that of bank fixed deposits. The interest is earned by the deposit account holder at the time of maturity period. Interest is payable to the account holder annually but calculated quarterly.
  • After maturity one can withdraw the account or can renew the same amount for the same time period. In some cases one can withdraw the amount before the maturity subject to various terms and conditions of the post office.

Conclusion

For a safe and secure investment individuals can opt for post office fixed deposit scheme. This deposit scheme is offered by post office for various time periods at ideal interest rates. Under section 80C of the income tax act the interest received is exempt from taxation with certain terms and conditions and maximum limits. The post office fixed deposit is risk free and mostly opted by rural area people.

Frequently Asked Questions

Q- Is Post Office FD taxable?

Ans. Yes, the post office fixed deposits are taxable for the interest paid, but the tax deduction at source is not done by the post office. One can save the tax by opting maturity period of five years for the deposits and get exemption from taxation maximum upto Rs 1,50,000.


Q- Who can open a post office fixed deposit account?

Ans. All the residents of India except NRIs (Non Resident Indians) can open a post office deposit account.


Q- What is the limitations of amount under the scheme of fixed deposits in post office?

Ans. The fixed deposit account of post office can be opened with a minimum of Rs 200 and there is no limitation of maximum amount for the same.


Q- For how long the amount can be deposited in fixed deposit of post office?

Ans. The depositor can opt for various tenures for depositing money in fixed deposits of post office. It can be deposited for one year or two year or three year or five years as per the convenience.


CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.