Post Office is still one of the largest banking service providers in the country. It is also associated with greater credibility than other investment avenues as it is governed by the Ministry of Finance.
If one is looking for a safe investment option that will earn decent returns, then one should consider one of the post office schemes.
The Post Office Monthly Income Scheme (POMIS) is not well-known among investors in the urban parts of the country. The population in urban India looks to invest in fixed deposits and other debt options for generating monthly incomes or even to just park their money. But the monthly income scheme offered by the Indian postal service, although lesser-known, offers many benefits to the investor.
It provides customers the following benefits:-
- It keeps the capital intact.
- It ensures that the customer receives a fixed monthly income.
- It yields better returns than debt-based instruments.
Interest can be drawn through auto credit into savings account standing at the same post office.
An individual can open the account by cash/cheque. In case of cheque, the date of realization in Government account will be considered as the date of opening an account.
Joint account can be opened by two or three adults. All joint account holders have equal share in each joint account. Single account can be converted into Joint. And Vice Versa.
A bonus of 5% on principal amount is admissible on maturity for MIS accounts opened on or after 8th December 2007 and up to 30th November 2011. No bonus is payable on the deposits made on or after 1st December 2011.
Post Office Monthly Income Scheme Suitablility
- For:-
Investors who are looking to earn assured income from their savings.
- Not for:-
Investors who are not looking for regular income. That is investors who don’t need regular income.
Guaranteed Returns
Post Office Monthly Income Scheme (POMIS) investment scheme guarantees investors returns. You earn income in the form of interest which is payable monthly. These returns are called as fixed monthly income.
The returns are higher compared to other fixed income investments like FD.
Interest Rates on Post Office Schemes August 2018
From 1st January 2018, interest rates on POMIS are 7.3% per annum.
Taxation
Post office MIS does not offer any tax benefits. It doesn’t fall under Section 80C. Thus, the income is subject to taxation. But it has no TDS either.
The monthly interest payout is also taxable income recorded under ‘income from other sources’. But, there is no TDS on the interest amount either.
The amount that is invested in POMIS is not eligible for tax rebates under Section 80C of the Income Tax Act, 1961.
Withdrawal
Post office monthly income scheme account allows premature withdrawal after one year.
If the investor is required to withdraw the money before 5 years, the following will be payable:-
- Deposit withdrawal within 1 year – The customer receives no benefits.
- Deposit withdrawal between 1 and 3 years – The customer receives the entire deposit after a nominal deduction of 2% as penalty.
- Deposit withdrawal after 3 years – The customer receives the entire deposit after a nominal deduction of 1% as penalty.
If the deposit and the interest are not withdrawn after 5 years, then that account will earn a simple interest (as per the post office savings account interest rate) up to 2 years. After that, the final amount will be kept idle, until withdrawn.
Account Portability
Portability of the account from one post office to another is available. A post office monthly income scheme account can be transferred from one post office to another.
Also, customers are free to open any number of time deposit accounts in any Post Office of their choice. POMIS has a flexible approach.
In the event of shifting from one city to another, one can easily transfer the investment to the post office in the current city at no extra cost.
Alternative Investments
If an investor doesn’t want to invest in post office time deposit, it has the following alternatives available, which have same characteristics:-
- SWP from Debt-Oriented mutual fund
- Annuity Plan of a life insurance company
- Senior Citizens Savings Scheme [For Senior Citizens Only]
- Pradhan Mantri Vaya Vandana Yojana [For Senior Citizens Only]
