Post Office Time Deposit Account-Requirement to open a account, Interest Paid, Income tax benefit, Premature withdrawals.
Post office time deposit account is just like the bank fixed deposit account. These time deposits are meant for those investors who want to deposit a lump sum for a fixed period.
How to Open Account:
Time deposit account can be opened at any post office with a minimum deposit of Rs. 200. There is no maximum limit for the account.
Who Can Open Account:
- An adult
- A minor with minimum age of 10 years.
- A guardian on behalf of a minor / a person of unsound mind.
- Two adults can go for joint account
- Time and Amount of Deposit
- The amount can be deposited for 1year, 2year, 3year, and 5years. The deposited amount is repayable after expiry of the period for which is of 1 year, 2 years, 3 years or 5 years. One has to deposit minimum amount of Rs 200 while there is no cup on maximum limit.
Interest is calculated on quarterly compounding basis, and is payable annually. Rate of interest varies according to the period of the deposit and is decided by the Central Government from time to time. Rate of interest increases with duration of deposit. Usually it is between 6 to 8%.
Income Tax Benefit:
- Tax exemption on Five Years Time Deposit Account can be availed under U/S 80C of the IT Act.
- There is no deduction of income tax at source.
Premature withdrawals from all types of post office time deposit accounts are permissible after expiry of 6 months with certain conditions. Principal amount cum accumulated interested is paid only at maturity. If a person withdraws after six months, amount is returned without interest. On withdraw after one year, interest is paid, but it is two per cent less.
Comparison Between Post office Time Deposits and Banks' Fixed Deposits:
- Post office Time Deposits are of 1 year, 2 year, 3 year and 5 year tenures and the minimum investment is Rs 20. Bank fixed deposits have ranging from 15 days to 10 years and the minimum amount is higer as compared to post office time deposits.
- Postal time deposits can be closed after 6 months but before one year of opening the account. On such closure, the amount invested is returned without interest. If a time deposit of more than a year is closed prematurely, post office will pay interest only for the completed year or years. For example if a time deposit of 3 years is withdrawn after 30 months, interest will be paid only for the two full years completed and the depositor will lose interest for the remaining 8 months. In case of bank FD is closed prematurely, banks have the discretion to charge penal interest.