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Post-Office Monthly Income Scheme

  • Tejesh Kumar
  • Dec 31 2018
  • 6 minutes
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Investments for Wealth Generation

What is a Post-Office Monthly Income Scheme?

Usually known as POMIS, the post-office monthly income scheme is a Government backed savings investment. This account assures regular monthly income with a current interest rate of 7.7% per annum.

There are no tax benefits and TDS on this scheme. While computing income tax, the interest is treated as income from other sources.

The account can be opened with a minimum investment sum of Rs. 1,500. You can also close this account prematurely after paying penalty for early withdrawal or closure.

Risk averse investors seeking guaranteed regular returns from savings.

Those not looking for regular income.

  • Pradhan Mantri Vaya Vandana Yojana
  • Senior Citizens Savings Scheme
  • Life Insurance annuity plans 
  • Systematic Withdrawal Plan from debt mutual funds  

Highlights

  • RiskIt is completely risk-free making it the best choice for risk averse investors.
  • ReturnsThe scheme currently offers an interest rate of 7.7% p.a. and is lined with G-sec rates.
  • TaxationThe interest earned is treated as “income from other sources” and taxed accordingly.
  • Lock-in Limitations5 years.
  • WithdrawalsPremature withdrawals are subjected to penalty.
  • Capital ProtectionIt is a Government scheme so the capital is completely secure.
  • Inflation ProtectionWhen inflation is above interest, the account earns no real returns.

Investment Goal

It is an Indian Government initiative with the objective to provide a risk free scheme to conservative investors, that yields guaranteed monthly returns and helps them earn a regular income.

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Overview

FeatureDescription
EligibilityAn Indian Resident holding a post-office savings bank account.
Entry Age

  • No age barriers.

  • Minors can hold an account, with a limit of 3 lakh, on their name, provided they are above 10 years.


Fee Structure (Account Opening Fee & Maintenance Charges)

  • Start POMIS with Rs. 1500 min.

  • The upper limit for a sole account is Rs.4.5 lakh and Rs. 9 lakh for a joint account.


InterestInterest rate of 7.7% p.a.is paid monthly.
Tenure5 years.
Exit OptionPremature closure is subjected to penalty.
Account Holding Categories

  • Individual (Minors through a guardian)

  • Joint Account


Nomination facilityThis provision is available.

Capital & Inflation Protection

Since this scheme is provided by the Indian Government, your investments are completely risk-free.

There is no protection when the rate of inflation is more than the rate offered by the post-office monthly income scheme. Hence the account earns no real returns.

Guarantees

The interest rate currently is 7.7% per annum. Once the investor has made his deposit, the interest (in line with G-secs of similar maturity and a spread of 0.25%) won’t change and will be notified every quarter.

Liquidity

  • Premature withdrawal is permissible post 1 year of account opening, however you are subjected to penalty that varies between 1-2%, based on account tenurity.
  • Closure on or before 3 years of account opening reduces 2% of the deposit and you receive the balance. Post 3 years, 1% of the deposit is deducted and treated the same.

Tax Implications

  • No tax benefits.
  • The interest amount on maturity is treated as income from other sources and taxed accordingly.
  • No tax is deducted at source (TDS).

How to open?

An account can be opened in any head or general post-office with the following requirements:

  • To link monthly payout, you must open a post-office savings account
  • Account opening form.
  • Passport size photographs – two
  • Aadhar card or acknowledgement of application in its absence.
  • Address and Identity Proof such as: PAN, Aadhar Card, declaration of Form 60 or 61, Driver’s License, Voter’s ID or Ration Card. (Carry originals of ID proof during account opening for verification purpose.)
  • Opt a nominee.

How to operate?

The account holder must use a pay-in-slip and credit the initial account opening amount to his/ her account.

Online Access

This scheme has no online options yet.

Key Takeaways

  • Investors earn guaranteed returns with POMIS.
  • No tax benefits and no TDS.
  • The scheme’s interest rates are aligned with G-secs of similar maturity and does not provide inflation cover.
  • You can transfer the account from one post-office to another.

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