Post office investment options and their tax benefits

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WEALTH creation is the primary objective of an investor. Everyone wishes to maximise their returns.

Some invest in instruments that give high returns with high risks and some want to invest in riskaverse instruments that provide definite returns with no risk of capital loss.

Here is a look at the taxability of some of the post office investment products: Public provident fund: Any individual can invest from Rs 500 to Rs 1,00,000 in a public provident fund in a financial year. The deposits can be made in lump sum or in 12 instalments. The rate of interest effective April 1 is 8.7 per cent per annum. The entire investment is eligible for deduction under Section 80C of the Income-tax Act, 1961 (`IT Act') subject to a limit of Rs 1,00,000. Interest earned on this deposit is exempt from tax and the investment is not chargeable to wealth tax.

National savings certificates:

National saving certificates (NSCs) are more like fixed deposits with the post office wherein you purchase a certificate that is generally redeemable in a specified time period.

These certificates are for five and 10 years. The fiveyear certificate provides a return of 8.5 per cent compounded six monthly and the 10-year one provides a rate of return of 8.8 per cent. These certificates are in denominations of Rs 100, Rs 500, Rs 1,000, Rs 5,000 and Rs 10,000. Tax deduction is available up to Rs 1,00,000 under Section 80C of the IT Act.

The interest earned every year on NSC gets reinvested and forms part of the capital and also entails deduction under Section 80C, except the final year's interest, year's interest, which does not get rein vested. It is not chargeable to wealth tax.

Post office savings ac count:

 Any individual can open a savings account with the post office. It works like a normal saving account opened in a ban with a cheque facility. Th saving bank generally earn a return of 4 per cent pe annum. Interest up to R 3,500 is exempt from ta is exempt from tax under Section 10(15) of the IT Act. Further, a de duction of Rs 10,000 is also available for the interest under Section 80TTA of the IT Act.

Monthly income scheme:

Under monthly income scheme, an investor is required to make a one-time deposit.

The maximum amount of deposit is Rs 4,50,000 in a single account and Rs 9,00,000 in a joint account. The rate of interest offered is 8.4 per cent and the scheme yields monthly income on the deposits made. The maturity proceeds are after five years.

Earlier a bonus of 5 per cent was paid on maturity, which has been discontinued from December 1, 2011. Interest income is liable to tax, but the investment is not chargeable to wealth tax.

Time deposit scheme:

Under a time deposit scheme, a term deposit is opened for five years with a minimum amount of Rs 200. The rate of interest offered is 8.2 per cent for the first year, which increases to 8.4 per cent in the fifth year. The investment for five years qualifies as a de duction under Section 80C of the IT Act subject to a maximum of Rs 1,00,000.

The investment is not chargeable to wealth tax.

Recurring deposits: Any individual can open a recurring deposit account.

The minimum investment to be made in such account is Rs 10 with no upper limit. A depositor generally makes 60 deposits over a term of five years. The rate of interest available is 8.3 per cent from April 1. The entire amount along with interest can be withdrawn after five years. Interest income is liable to tax, but the investment is not chargeable to wealth tax

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