National Savings Certificate Types

National Savings Certificate (NSC) TypesNational Savings Certificate, popularly known as NSC, is a time-tested tax saving instrument that combines adequate returns with high safety. NSCs are an instrument for facilitating long-term savings. A large chunk of middle class families use NSCs for saving on their tax, getting double benefits. They not only save tax on their hard-earned income but also make an investment which are sure to give good and safe returns.

How to Invest
National Savings Certificates are available at all post-offices. The application can be made either in person or through an agent. Post office agents are active in nooks and corners of the country. Following types of NSC are issued:

  • Single Holder Type Certificate: This can be issued to: (a) An adult for himself or on behalf of a minor (b) A Trust.
  • Joint 'A' Type Certificate: Issued jointly to two adults payable to both holders jointly or to the survivor.
  • Joint 'B' Type Certificate: Issued jointly to two adults payable to either of the holders or to the survivor.
Who can Invest
  • An adult in his own name or on behalf of a minor
  • A trust
  • Two adults jointly
Denomiations and Limit
National Savings Certificates are available in the denominations of Rs. 100 Rs 500, Rs. 1000, Rs. 5000, & Rs. 10,000. There is no maximum limit on the purchase of the certificates. So it is for you to decide how much you want to put in the NSCs. This is of course a huge benefit for you can decide as much as your budget allows.

Maturity
Period of maturity of a certificate is six years. Presently interest paid is 8 % per annum half yearly compounded. Maturity value of a certificate of any other denomination is at proportionate rate. Premature encashment of the certificate is not permissible except at a discount in the case of death of the holder(s), forfeiture by a pledgee and when ordered by a court of law.

Tax Benefits

  • Interest accrued on the certificates every year is liable to income tax but deemed to have been reinvested.
  • Income Tax rebate is available on the amount invested and interest accruing under Section 88 of Income Tax Act, as amended from time to time.
  • Income tax relief is also available on the interest earned as per limits fixed vide section 80L of Income Tax, as amended from time to time.

National Savings Certificate Forms

FAQ on Monthly Income Scheme (MIS) from Post Office

FAQ on Post office Monthly Income Scheme (MIS)What is the rate of interest applicable on the POMIS?
The interest rate on investment in a POMIS is currently 8 per cent per annum, payable monthly.
   
   
What is a post office monthly income scheme?
The post office monthly income scheme (POMIS), as the name suggests, is a scheme that provides monthly income (currently at 8 per cent p.a) to investors.
   
   
What is the minimum and maximum amount required to open a post office monthly income scheme account?
While the minimum investment amount in a POMIS is Rs.1500 or in multiples thereof; the maximum amount is Rs. 4.5 lakh in a single account and Rs. 9 lakh in a joint account.
   
   
Is there any additional benefit other than monthly payouts on investment in a post office monthly income scheme?
A bonus of 10 per cent is payable on a maturity period of 6 years in a POMIS investment.
   
   
What are the consequences of exit from a post office monthly income scheme (POMIS)?
Exit after 1 year will entail a loss of 5 per cent of the amount invested. As a result, while the investor would not suffer any loss in interest earnings, the loss of principal can be high.
   
   
Will the post office monthly income scheme offer encashment on account closure before maturity?
There is the facility of premature closure of the account after 1 to 3 years, at a 2 per cent discount.
   
   
Can everybody open a post office monthly income scheme (POMIS) account?
A POMIS account can be opened by an individual, two/three adults jointly, and a minor through a guardian.
   
   
Is the interest paid by the post office toward the post office monthly income scheme (POMIS) subject to tax deducted at source (TDS)?
No, TDS is not applicable on the interest paid by the post office toward POMIS.
   
   
Can a non-resident Indian (NRI) or a Hindu Undivided Family (HUF) open a post office monthly income scheme (POMIS) account?
NRIs or HUF cannot open a POMIS account.
   
   
Is there a minimum age for a minor to open a post office monthly income scheme (POMIS) account?
A minor has to be at least 10 years of age to be able to have a PO MIS account in his/her own name directly.

Indian Post office Monthly Income Scheme – Details

Post office Monthly Income Scheme (MIS)This scheme appeals to conservative investors with traditional values, and for good reason. This scheme offers monthly income and is a safe, guaranteed-by-the-government option. For retirees, widows and others looking for a steady income, it can be ideal. Read on to learn more.

The Post Office Monthly Income Scheme, or PO MIS, is offered by Indian Post Offices. A lump sum amount is deposited with the post office and monthly interest earned each month is paid out to you.

As the scheme is offered by post offices, it is backed by the government. Thus, the PO MIS is one of the safest investments available.

                                         

Interest

The rate of interest offered on PO MIS is 8% per annum (year). Interest is paid out every month but direct credit to your bank account remains a problem as Post Offices are not that technologically advanced in India, as such one needs to go and collect the monthly income from the PO directly. However if you have a savings account in the same post office then interest can be credited directly to your account. A 5% bonus is paid on maturity of the fund, therefore, the effective yield works out to 8.9% per year.

                   

The interest earned is fully taxable. There is no tax deducted at source (TDS). The investment in PO MIS is exempt from wealth tax.

                                  

Who is eligible to invest?

Only individuals can invest in PO MIS. You can either open a single or joint account. A Non Resident Indian (NRI) or Hindu Undivided Family (HUF) cannot open a PO MIS account.

                                

Investment Limit

There is an upper limit on investment in a PO MIS scheme. You cannot invest more than Rs 4.5 Lakhs in a single account. If you invest jointly (2/3 names), the limit is Rs 9 Lakhs. The minimum investment is Rs 1,500.

                             

Duration

The tenure of PO MIS is 6 years – your investment is locked in for this time period.

                                    

Number of Accounts

Any number of accounts can be opened, but the total investment cannot exceed the upper limit across all the accounts.

                                 

Nomination

You can specify the nominee at the time of opening the account, or at any time later.

                 

Premature withdrawal, encashment, closure & Penalty

Premature withdrawal of the invested amount is allowed after 1 year of opening the account. If the account is closed between 1 and 3 years of opening, 2% of the deposited amount is deducted as penalty. If it is closed after 3 years of opening, 1% of the deposited amount is charged as penalty. The bonus amount is forfeited when you close the account early.

Comparison of Post Office Monthly Income Scheme with Fixed Deposit

Post Office MIS vs. Fixed DepositTough times stare at investors looking for fixed income instruments. The deposit rates offered by banks have fallen to five-year lows. Bank FDs were the favourites till some months back as public and private sector banks offered upto 9% interest on deposits with maturity of 3 years and above. This has now declined to around 7%. The future looks bleaker, with the deposit rates expected to decline further by 50-100 basis points. What should the fixed income lovers do in such a scenario? Is there an alternative to bank FDs?

Monthly Income Scheme and Bank Fixed Deposit


The Post Office Monthly Income Scheme, commonly known as MIS, is the answer. MIS was quite popular some years back. Its appeal, however, declined in the face of a rise in interest rates on FDs and aggressive marketing strategies unleashed by banks to woo new depositors. MIS could come into limelight once again in the backdrop of declining interest rates. Moreover, the post office deposits come with unique features such as a government guarantee on the deposit amount and fixed rate of interest.

Like any fixed deposit, a lump sum amount deposited with the post office under the aegis of MIS will earn an interest at a fixed rate of 8% per annum. And, unlike bank FDs, the interest is paid out every month. The tenure is fixed at 6 years. Apart from monthly interest-payout , MIS offers 5% bonus on maturity. The effective annual yield therefore works out to 8.9%, which is much higher than the bank deposit. The value add-on is that the monthly MIS proceeds could be invested directly in Post Office’s Recurring deposit (RD), which gives annual returns of almost 10.5% per annum.

How does it work?

Suppose Mr A invests Rs 90,000 in Bank FD for six years. With the rate of deposit hovering around 7%, Mr A will receive almost Rs 46,500 as interest at maturity and an option of compounded interest. On the other hand, if Mr B put Rs 90,000 into MIS today, he will receive Rs 600 every month for 72 months. He is entitled to Rs 43,200 in the form of monthly interest till maturity and Rs 4500 as bonus at the time of maturity. Mr B’s returns total Rs 47,700 in six years, which is higher than interest earned on the bank FD of the same tenure.

Suppose that Mr B did not require the monthly interest. So he opts for automatic Post Office MIS vs. Bank Fixed Deposittransfer of MIS interest to Recurring Deposit. A sum of Rs 600 is deposited in his RD account every month, offering 7.5% per annum compounded quarterly. At the end of the sixth year, Mr B will receive almost Rs 51,400 from his RD account. The receivables from RD and the bonus on MIS total Rs 56,000 in six years. As a result, Mr B, who invested in MIS and monthly proceeds in RD, will accumulate Rs 9500 more than Mr A, who opted to invest in Bank FD of the same tenure.

The same features of MIS make it unattractive. The interest income is fully taxable as in the case of bank FDs. MIS do have an edge over bank FDs as there is no tax deduction at source (TDS). However, the bank FDs maturing above 5 years are subject to tax benefits under Sec 80C.

It will be definitely a better bet if one neglects the tax implications of the scheme. The rate of return is not interest rate sensitive. Though the general interest rates may fall further, the scheme will continue to fetch 8% fixed rate of interest. Further, a combination with RD will even earn an effective yield of 10.5%, which is attractive in times of uncertainty and falling interest rates

Regular Income from Monthly Income Scheme (MIS) from Post Office

Monthly Income from Indian Post officeMr. Sandeep retired last month, and has received a sum of money which he is looking to invest in a non risky product such that he receives regular income going forward. He already has investments in fixed deposits with banks and is looking for something different. Post Office Monthly Income Scheme (PO MIS) will come handy for Mr. Sandeep as it will serve twin objectives- regular income and safety. PO MIS is guaranteed by the government and hence the risk element is very low.

What is a PO MIS?

PO MIS is an investment product offered by the Post Office, with a six year lock in period, wherein investors will receive interest income every month at a fixed rate of interest and a bonus at the end of the tenure. This product is best for those looking for a steady state of income. It is like a fixed deposit providing monthly income in the form of interest.

The interest rate currently provided on this product is 8% p.a. with a bonus of 5% on the principal amount at the end of the tenure i.e. six years. On account of the bonus, the effective return on the product increases to ~8.9%.

The interest earned on PO MIS is taxable. There is not tax deducted at source and the investment is exempt from wealth tax.

Procedure

You need to approach any head post office/ sub-post office, fill the prescribed form and then submit it with cash, demand draft or local cheque. The post office will open the account for you, issue you a scheme certificate and then give you a passbook to record the transactions against the MIS. The passbook will contain details such as name, address, the amount deposited and the monthly interest payable along with the date on which the deposit will be due for final payment. Interest can be received either by presenting the pass book to the post office  every month or by availing of the direct credit facility to the savings account in which case, the pass book has to be presented to the post office at least once every six months for completion of entries. There is not restriction on transfer of account to any other post office.

Product Features

Eligibility: Only individuals can invest in this product. A minor having attained 10 years of age can open an account in his/her own name directly. A Non Resident Indian (NRI) or Hindu Undivided Family (HUF) cannot have an investment in PO MIS

Tenure: Investment in this product will be locked in for duration of six years.

Interest payment: Interest is paid on a monthly basis one month from the date of making the investment. In case monthly interest is not claimed, additional interest is not paid for the interest not claimed.

Investment Limit: The maximum investment is Rs. 4.5 lakh in case of single account and Rs.9 lakh in case of a joint account. The minimum amount that can be invested is Rs. 1,500

Number of accounts: Any number of accounts can be opened so long as the total amount does not exceed the maximum permissible amount of Rs. 4.5 lakh in case of single holding and Rs. 9 lakh in case of joint holding.

Pre-mature closure: This can be done only one year after the investment has been made. The conditions are as under

    * Closure prior to 3 years of opening the account will lead to a deduction of 2% on the principal amount i.e. the deposit, and the remainder will be paid.
    * Closure post 3 years of opening the account will lead to a deduction of 1% on the principal amount, and the remainder will be paid.

E.g. Mr. Mani had an investment in a PO MIS of Rs. 1 lakhs. He decided to Post office Monthly Income Planpre-maturely close the account at the end of 1.5 years. He would have received monthly interest for the 1.5 years the money was with the post office which totals up to Rs.12,000. He will lose out on the bonus on account of pre-mature closure and will receive Rs. Rs. 98,000 on account of the penalty of 2% instead of Rs. 1 lakh. Hence his total earnings for the 1.5 years will fall to Rs. 10,000 which in effect is a return of 6.67%.

In case of death of a depositor before maturity, the account may be closed and the deposited amount refunded to the nominee/heir along with interest up to the month preceding the month in which refund is made.

The rate of interest currently offered by banks for a similar tenure is almost a percentage point lower than that offered by PO MIS in most cases at this point. Besides, banks do not pay off the interest monthly. This makes PO MIS more attractive.

Post Office Monthly Income Scheme Snapshot

  • IPost Office MIPnterest rate of 8% per annum payable monthly.
  • Maturity period is 6 years.
  • Minimum investment amount is Rs.1000/- or in multiple thereof.
  • Maximum amount is Rs. 3 lacs in single account and Rs. 6 lacs in a joint account.
  • Account can be opened by an individual, two/three adults jointly and a minor through a guardian.
  • A minor having attained 10 years of age can open an account in his/her own name directly.
  • Non-Resident Indian / HUF cannot open the Account.
    Minor has a separate limit of investment of Rs. 3 lacs and the same is not clubbed with the limit of guardian.
  • A separate account is opened for each deposit.
  • Any number of accounts can be opened subject to the maximum prescribed limit.
  • Facility of automatic credit of monthly interest to saving account if accounts are at the same post office.
  • Facility of premature closure of account after one year @ 3.50% discount.
  • No deduction of 3.5% if account is closed on completion of three years.
  • Facility of reinvestment on maturity of an account.
  • Interest not with-drawan does not carry any interest.
  • Maturity proceeds not drawn are eligible to saving account interest rate for a maximum period of two years.
  • Account is transferable from one post office to any Post office in India free of cost.
  • Nomination facility available.
  • Rebate under section 80 C not admissible.
  • Interest income is taxable, but no TDS
  • Only scheme in Post office where monthly interest is payable.
  • Most suitable scheme for senior citizens and for those who need regular monthly income.
  • Deposits are exempt from Wealth Tax

Monthly Income Scheme – Returns and Advantages

Post office Monthly Income Scheme (MIS)Post Office Monthly Income Scheme 
The post-office monthly income scheme (MIS) provides for monthly payment of interest income to investors. It is meant for investors who want to invest a sum amount initially and earn interest on a monthly basis for their livelihood.  The MIS is not suitable for an increase in your investment. It is meant to provide a source of regular income on a long term basis. The scheme is, therefore, more beneficial for retired persons. 

Features
Only one deposit is available in an account. Only individuals can open the account; either single or joint.( two or three). Interest rounded off to nearest rupee i.e, 50 paise and above will be rounded off to next rupee. The minimum investment in a Post-Office MIS is Rs 1,500 for both single and joint accounts. The maximum investment for a single account is Rs 4.5 lakh and Rs 9 lakh for a joint account. The duration of MIS is six years.  

Returns
The post-office MIS gives a return of 8% interest on maturity. The minimum investment in a Post-Office MIS is Rs 1,500 for both single and joint accounts

Deposit Rs Monthly Interest Amount returned on maturity
5,000
10,000
50,000
1,00,000
2,00,000
3,00,000
6,00,000
33
66
333
667
1333
2000
4000
5,000
10,000
50,000
1,00,000
2,00,000
3,00,000
6,00,000

Advantages

 

Premature closure of the account is permitted any time after the expiry of a period of one year of opening the account. Deduction of an amount equal to 5 per cent of the deposit is to be made when the account is prematurely closed. Investors can withdraw money before three years, but a discount of 5%. Closing of account after three years will not have any deductions. Post maturity Interest at the rate applicable from time to time (at present 3.5%). Monthly interest can be automatically credited to savings account provided both the accounts standing at the same post office. Deposit in Monthly Income Scheme and invest interest in Recurring Deposit to get 10.5% (approx) interest. The interest income accruing from a post-office MIS is exempt from tax under Section 80L of the Income Tax Act, 1961. Moreover, no TDS is deductible on the interest income. The balance is exempt from Wealth Tax.

How to Open
 You can buy a post office MIS at any post-office in India. When you open an MIS, you will get a certificate issued by the post office. In addition, the investor is provided with a passbook to record his transactions against his MIS.

Maturity Value of Kisan Vikas Patra in different time duration

Maturity Value of Kisan Vikas Patra (KVP)Money doubles in 8 years and 7 months. Facility for premature encashment as per the table given below (for the KVP purchased on or after 1st March 2003).

 

 

 

After

Amount Payable

 2 years 6 months or more but less than 3 years

1170.51

 3 years more but less than 3 years 6 months

1207.95

 3 years 6 months or more but less than 4 years

 1267.19

 4 years or more but less than 4 years 6 months

 1310.80

 4 years 6 months or more but less than 5 years

 1355.90

 5 years or more but less than 5 years 6 months

 1435.63

 

 5 years 6 months or more but less than 6 years

 1488.49

6 years or more but less than 6 years 6 months 1543.30
6 years 6 months or more but less than 7 years 1649.13
7 years or more but less than 7 years 6 months

1713.82

7 years 6 months or more but less than 8 years 

1781.06

8 years or more but less than 8 years 7 months

1850.93


Features, returns and liquidity of Kisan Vikas Patra from Indian Post Office

Liquidity on Kisan Vikas PatraKisan Vikas Patra (KVP) doubles your money in 8 years and 7 months with the advantage of premature withdrawal. KVP is sold through all Head Post Offices and other authorised post offices throughout India. The rate of return is 8.41 per cent, compounded annually.

KVP accumulates money at a fixed rate, and your money doubles in 8 years and 7 months. But KVP is not meant for regular income. It is for those looking for a safe avenue of investment without the pressing need for a regular source of income.

Features:

  • The minimum investment in KVP is Rs 100. Certificates are available in denominations of Rs 100, Rs 500, Rs 1,000, Rs 5,000, Rs 10,000 and Rs 50,000. The denomination of Rs 50,000 is sold through head post offices only. There is no limit on holding of these certificates. Any number of certificates can be purchased. A KVP is sold at face value; the maturity value is printed on the Certificate.
  • It is a good option if you are looking for hassle-free investment as it assures a certain sum of money at the expiry of the duration of your investment.
  • With a fixed rate of return, KVP does not provide safeguards against the perils of high inflation rates.
  • Depending on whether the finance company or the bank from where you are raising the loan accepts it or not. Some banks accept it for raising house loans.
  • Income is assured at the prescribed rate of interest. As mentioned, this is a risk-free investment channel as the KVP comes with the backing of the Government of India.
  • Since the KVP has the backing of the Government of India and is, therefore, extremely safe, it does not require any commercial rating.
  • KVP is not a bearer certificate, and is not easily transferable. Permission of the post master is required for any transfer. These cannot be traded in the secondary market.
  • KVP cannot be traded in the secondary market and, hence, the question of its market value does not arise.
  • KVP is held physically in the form of certificates that are issued to the investors by the post office. The option of holding KVP in demat form is not available.
  • Although no TDS is applicable on the interest income from KVP, there are no tax incentives as per the provisions of the Income Tax Act, 1961.
  • Maturity on providing proper identity and by simple discharge of the certificate on the reverse.

Returns:

KVP Scheme doubles money in seven years and three months.

What is the liquidity of KVP?

If the premature encashment takes place within a period of one year from the date of purchase of the certificate, only the face value of the certificate shall be payable. No interest is payable in this case.

After the expiry of one year, but before two years and six months from the date of the issue of the certificate, the face value of the certificate together with simple interest at the specified rate for the completed months for which the certificate has been held, shall be payable.

If a certificate is encashed any time after expiry of two-and-a-half years, the amount payable is as specified by the government from time to time.