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ULIP INSURANCE

TDS on Post Office Schemes

Karan Sharma Karan Sharma 06 April 2020

Withdrawals from your post office small savings schemes will be subject to tax deducted at source (TDS), if the amount exceeds Rs. 1 crore in one financial year. Read this article to know more.

Post Office Schemes

As per Section 194 of the Income Tax Act, 1961, there will be a deduction of TDS of 2 per cent on cash withdrawals in excess of Rs. 1 crore in a year, from 1.9.2019. The cash withdrawals will be applicable to account holders in all types of small savings accounts held from 1.04.2019.

Note: As per the Central Board of Direct Taxation, TDS will be deducted on cash withdrawals made on or after 1.9.2019, including cash withdrawals which are taken in excess of Rs. 1 crore from 1.4.2019 to 31.9.2019. The Government of India has inserted Section 194N in the Income Tax Act, 1961, through Finance Act (No.2) 2019 for deduction of TDS of 2% on cash withdrawals in excess of Rs. 1 crore in a year, from 1.9.2019, and the new provision mentioned in Section 194N is applicable from the financial year 2019-20.

Source: The Financial Express

The post office offers multiple small savings schemes which offer a good rate of interest. The rates are revised every quarter and are based on government security exchange rates. Here are the different types of savings schemes offered by the post office.

Post Office Time Deposit - Similar to bank deposits, post office offers time deposits which have tenures of 1, 2, 3 and 5 years. There is no limit to the number of time deposit accounts that you can open and it can be opened with a minimum deposit as low as Rs. 200. Time deposits are eligible for a tax rebate under Section 80C of the Income Tax Act, 1961 for your 5-year time deposit. The prevailing rates for the 1, 2, 3 and 5-year time deposits are 6.9%, 6.9%, 6.9% and 7.7% respectively, applicable from 01.07.2019. If you take tax rebate into account, you can gain a maximum rate of 8.6% on a 5 year deposit. A post office time deposit will get auto-renewed on maturity and the interest rate on the date of maturity will be applied to the renewed deposit.

Public Provident Fund - Also known as PPF, this is a government backed small savings scheme where the interest earned, the amount deposited, as well as the maturity amount, are subject to no tax. The rate of interest for a PPF is 7.9% applicable since July 2019 and the maximum investment amount is Rs. 1,50,000. Since the interest is compounded annually, a PPF investment will gain a much larger amount as interest at the end of the 15 year period.

National Savings Certificate - Also known as NSC, the current version is a 5 year NSC which is named as NSC VIII issue. The current rate of interest on NSC is 7.9% applicable from 01.07.2019. There is no limit to the maximum investment. Also, you can utilise your NSC as a collateral for getting loans from other banks. NSC qualifies for a rebate under Section 80C of the Income Tax Act, 1961, but you are required to pay taxes on the interest earned on your investment. This tax is calculated as per the income tax slab you fall in.

Senior Citizen Savings Scheme - This is a savings scheme designed specifically for senior citizens. Senior citizens are individuals who are atleast 60 years of age. The maturity period of SCSS is 5 years. The maximum investment amount is set at Rs. 15 lakhs and there is no limit to the number of accounts that you can open. The current rate of interest is 8.6% per annum applicable from 01.07.2019. The interest rate on SCSS is taxable and the investment amount can be utilised as a deduction under Section 80C of the Income Tax Act, 1961. The SCSS interest will be subject to TDS if the interest income exceeds Rs. 40,000 in a single financial year.

Savings Account - This is similar to a savings bank account provided by a bank. The minimum amount required to open a post office savings account is Rs. 20. Interest on your post office savings account is totally tax-free up to Rs. 10,000 and the interest rate is fixed at 4%. The interest can be claimed as a tax deduction for up to Rs. 10,000. You can also apply for an ATM card if the post office has Central Banking Solution enabled.

Monthly Income Scheme - Also known as MIS, this is a monthly income plan with a maturity period of 5 years. The minimum investment amount is Rs. 1,500 and the maximum investment amount is Rs. 4.5 lakhs for a single account. A joint account can be opened between 2 or more adults with a maximum investment of Rs. 9 lakhs. The interest from your MIS can be credited to your post office savings account. The interest income is subject to income tax. The current rate of interest is 7.6 applicable from 01.07.2019 and is paid on a monthly basis.

Now that you are aware of the basic savings schemes offered by a post office, it is important to calculate your income tax accordingly, if you have invested in any of the plans mentioned above.

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Karan Sharma
Written by Karan Sharma
Content Specialist and Strategist, foolishly creative and always ready for a game of 'Call of Duty'.