Post Offices are an integral part of the development of our country. The post office network is quite extensive to reach the remotest parts in India even today where modern technology and amenities have not been able to reach. Apart from the usual services provided by the post office, they also provide a host of savings and investment options. These are low-risk government-backed investment options with fixed interest.
One of the famous savings schemes offered by post offices is the Post Office Time Deposits, popularly known as POTD. The interest rate on POTD is paid yearly but is calculated on a quarterly basis. The maximum interest on investment in POTD is 6.7% per annum.
This scheme provides tax benefits and flexible deposit and tenure options to ensure maximum reach to the citizens of the nation especially the rural population.
Given below are a few details of the Post Office Time Deposit Scheme.
Benefits of Post Office Time Deposit Scheme
The various highlights of the Post Office Time Deposit scheme are mentioned below.
- Risk
POTD is a government-backed scheme making it totally risk-free. This makes it an ideal scheme for investors looking to park their money in secure investment options and earn fixed interest on the same.
- Returns
The returns on the POTD scheme are in the form of interest at a fixed rate. The applicable rate of interest depends on the term of the deposit made by the investor. The details of the same are tabled below.
| Tenure of the deposit | Rate of interest |
| 1 Year Account | 5.5% |
| 2 Year Account | 5.5% |
| 3 Year Account | 5.5% |
| 5 Year Account | 6.7% |
The scheme provides interest on an annual basis. As per the guidelines of POTD, no interest is provided on the interest of the previous year that is accrued but not withdrawn by the investor.
- Taxation
The deposits under the POTD scheme are eligible for a deduction under Section 80C of the Income Tax Act, 1961. The maximum deduction available under this section is Rs. 1,50,000 for a 5-year deposit. Furthermore, section 80TTB provides a tax exemption of up to Rs. 50,000 to senior citizens for interest received from any post office deposits.
- Lock-in Limitations
The investors are allowed to hold deposits for varying tenures. The maturity benefits under this scheme are offered for 1 year, 2 years, 3 years, and 5 years from the date of opening a deposit under the scheme.
- Withdrawals
Investors have the facility of premature withdrawals under this scheme. An application for withdrawal has to be submitted at the concerned post office to make a premature withdrawal. The scheme does not permit any premature withdrawal from the scheme before the completion of 6 months from the date of starting the deposit. Such premature withdrawal is subject to penal interest depending on the year of withdrawal and is detailed below.
| Time of withdrawal | Interest rate applicable |
| Withdrawal before completion of 6 months from date of deposit | Not allowed |
| After completion of 6 months but before completion of 1 year for deposits of any tenure | The applicable rate of Post Office Savings Account (4% per annum) |
| Premature closure of 2 year/3 year/5 year deposit after completion of 1 year | 2% less than the applicable deposit rate |
- Capital Protection
POTD is a Government-backed scheme and the capital is completely secure. The investors are required to make a minimum investment of Rs. 1,000 and further investment is to be made in multiples of Rs. 100. There is no ceiling on maximum investment that can be made under this scheme.
- Inflation Protection
This scheme does not account for protection against prevailing inflation. Hence. In a scenario when the inflation rate is above interest, the investment in POTD will not earn any real returns.
Who should invest in a Post Office Time Deposit?
It is an Indian Government initiative to provide a risk-free scheme to conservative investors, that yields guaranteed returns on deposits depending on the tenure of investment.
Overview
| Feature | Description |
| Eligibility | Any resident Indian |
| Entry age | For adults – Above 18 years For children – Minors above the age of 10 years |
| Fee Structure (Account Opening Fee & Maintenance Charges) | The minimum investment is Rs. 1,000 (continued with multiples of Rs. 100) No maximum limit of investment. |
| Interest | 5.5% – 6.7% depending on the tenure. |
| Exit option / Liquidation of policy | Allowed only after completion of 6 months subject to a penal interest |
| Nomination Facility | This facility is available under POTD |
| Account Holding Categories | The conditions for opening a POTD account are,It can be opened by a single adultJoint accounts are permitted with up to three joint account holdersA guardian can open a POTD account on behalf of a minor or person of unsound mindA minor above the age of 10 years can open a POTD account in their name.A person can hold multiple accounts without any maximum ceiling. |
How to open a Post Office Time Deposit Account?
Investors can open one or more accounts with the POTD scheme without any ceiling on the maximum number of accounts that can be opened by any person. The process of account opening for POTD has been simplified over the years. The details of the same are mentioned below.
Modes of opening POTD
A person can open a POTD account through online or offline modes. The process for each of the modes is detailed below.
- Online mode
The steps for opening a POTD account online are,
- The first step is to download the India Post mobile application from Google Playstore
- Register on the app and login using the valid credentials
- The next step is to click on the ‘Requests’ tab on the home screen
- The user will be taken to a new page where they will have to provide the necessary details like name, address, deposit amount, deposit tenure, nominee, etc.
- After providing the same, they will have to make payment of the deposit amount through any of the online payment options provided.
- The details of the POTD account will be sent to the registered mobile number of the customer.
- Offline mode
The steps to open a POTD account offline are,
- Visit the nearest post office or the post office (where a savings account is already held) and fill out the application form for POTD. The form is also available at the website of the Post Office in the ‘Forms’ Section.
- Submit the form along with the required supporting documents
- Make the initial deposit (minimum Rs. 1,000) to open the POTD account.
- Get the acknowledgement of opening the account and the account details.
Conclusion
- Investors earn guaranteed returns with POTD.
- Tax deductions under 80(C) can be enjoyed if deposits are made for 5 years.
- The scheme’s interest rates are aligned with G-secs of similar maturity and do not provide inflation cover.
- You can easily transfer the account from one post office to another.
- On maturity, an extension of deposits is permissible.
FAQs
1. When should the investor apply for an extension of a POTD account?
A. POTD allows the account to be extended for the period of initial deposit tenure. The window for applying the extension of account in each case is different and is tabled below.
| Deposit tenure | Window for renewal |
| 1-year tenure | Within 6 months of maturity |
| 2-year tenure | Within 12 months of maturity |
| 3/5 year tenure | Within 18 months of maturity |
2. What are the limitations of the POTD scheme?
A. The limitations of the POTD scheme are that it does not account for inflation-adjusted returns. Moreover, although being a Government-backed scheme, the rate of interest is lower than other investment options like PPF (7.1%), NSC (6.8%), Senior Citizens Savings Scheme (7.4%), Sukanya Samriddhi Yojana (7.6%).
3. How many POTD accounts can be opened by a person?
A. There is no limit to the number of POTD accounts that can be opened by a person.
4. Can a POTD account be transferred to another post office?
A. Yes. POTD accounts are easily transferable to other post offices by a simple application for the same.
5. Is having a PO Savings Account mandatory for opening a POTD account?
A. Yes. It is mandatory to open a PO Savings Account before opening a POTD account with any post office.
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