A Quick Take on Post Office Tax-Saving Fixed Deposits

Fixed Deposits (FDs) have remained a preferred mode of investment for many over the years. This is considering an FD scheme provides guaranteed returns. 

In this regard, the post office FDs, also referred to as the Post Office Time Deposit  (TD) Scheme, provide investment options of one-, two-, three-, and five-year tenures. The five-year FD also referred to as a post office tax-saving FD,  falls in the Exempt-Exempt-Exempt (EEE) category.

This means the invested amount, interest earned, and maturity amount under this particular scheme are tax-exempt. Investments up to Rs 1.5 lakh in the five-year post office FD are eligible for tax benefits under Section 80C of the Income-Tax Act (ITA). 1961. 

In addition, it provides the highest interest rate at 7.5% among all the other post office FDs. The interest that an individual earns on this FD is payable annually but calculated quarterly.

Post Office Tax-Saving FD: Let’s assume you invest Rs 10 lakh in the five-year post office FD and get 7.5% interest on the amount in five years, then you, as an investor, will earn a total interest of Rs 4,49,948, and the maturity value of your investment will be Rs 14,49,948.

National Savings Time Deposit Account Scheme: The government-sponsored post office FD scheme provides interest returns payable annually and compounded quarterly. The minimum investment limit in the scheme is Rs 1,000 and in multiples of Rs 100. There is no maximum return threshold, however. Interest rates range from 6.9-7.5% for FDs of different durations. The interest rates for one-, two-, three-, and five-year FD schemes are 6.9%, 7%, 7.1% and 7.5%, respectively.

Tax benefits  The five-year FD scheme gives tax benefits of up to Rs 1.5 lakh under Section 80C of the ITA, 1961. While interest payments over Rs 50,000 for senior citizens and Rs 40,000 for other depositors are subject to tax deducted at source (TDS).

Eligibility criteria: Adults can open and operate an account on an individual basis or in groups of up to three persons.

Additionally, the post office also accepts accounts in the name of minors, with a legal guardian actively managing the account until the minor attains the age of 18.