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Understanding Post Office RD Scheme

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Mar 14, 2024

15 Mins

Introduction:

If you're considering a secure and disciplined approach to saving, the Post Office RD Scheme might just be the perfect fit for you. Designed to encourage regular saving habits among individuals, the Post Office RD Scheme offers a convenient way to accumulate funds over time. Let's delve into the specifics of how this scheme works and what you need to know before getting started.

Monthly Deposits:

To kickstart your journey with the Post Office RD Scheme, you're required to make sixty monthly deposits into your RD account.
Deposits can be made either in cash or through a cheque. In the case of cheque deposits, the date of deposit is considered to be the date of clearance of the cheque.
The minimum deposit amount is set at Rs 100, with the flexibility to make deposits in multiples of Rs 10.
There's no upper limit on the maximum deposit amount, giving you the freedom to save according to your financial capacity.

Initiating Your Account:

Your first deposit is crucial as it sets the denomination for subsequent deposits throughout the tenure of your RD account.
For instance, if your initial deposit is Rs 5,000, all future deposits during the tenure must also be in denominations of Rs 5,000.
It's essential to choose this denomination carefully to ensure consistency in your savings approach.

Timely Deposits:

Depending on when you open your RD account, there are specific timelines for subsequent deposits.
If your account is opened before the 16th day of the month, subsequent deposits must be made by the 15th day of each month.
For accounts opened after the 16th day, deposits should be made between the 16th day and the last working day of the month.

Consequences of Default:

Defaulting on subsequent deposits can result in additional fees.
A default fee of Rs 1 per Rs 100 denomination is applicable for each month of default until regular deposits resume.
Upon default, you're required to clear the overdue amount along with the default fee before making any new deposits.

Reviving Discontinued Accounts:

If there are four consecutive months of default, your account will be deemed discontinued.
However, you have a grace period of two months from the fourth month of default to revive the account.
Failure to revive within this period leads to the account remaining discontinued, with no further deposits allowed.

Making the Most of Your Post Office RD Account

Welcome back to our exploration of the Post Office RD Scheme! In this section, we'll delve deeper into various aspects of managing your RD account effectively, including advance deposits, maturity options, and taxation. Let's dive in!

Advance Deposits:

Looking to expedite your savings? The Post Office RD Scheme allows for advance deposits of up to 6 monthly installments.
These advance deposits can be made at any time, provided your account is not discontinued due to default.
The advance deposit period includes the month in which the deposit is made, along with the subsequent months.
You can opt for advance deposits for any period up to five years, offering flexibility in your savings strategy.

Rebate on Advance Deposits:

Making advance deposits comes with its perks, including rebates on certain deposit frequencies.
Depending on the number of advance deposits made in a calendar month, you may be eligible for rebates.
For example, making six or more deposits in a month qualifies you for a rebate of Rs 10 per account of Rs 100 denomination.
The rebate amount increases for higher deposit frequencies, providing added incentives for proactive saving habits.

Maturity Options:

The maturity period for the Post Office RD Scheme is set at 5 years, equivalent to 60 monthly deposits.
However, you have the option to extend the maturity by another 5 years by submitting Form-4 to the Post Office.
During the extension period, the interest rate remains consistent with the rate at which the RD account was opened.
You also have the choice to close the RD account at any time during the extension period, albeit with certain interest rate considerations.

Retention and Closure:

Following the initial 5-year maturity period, you can opt to retain the RD account for an additional 5 years without making fresh deposits.
To retain the account, you must submit Form-3 to the Post Office, indicating your intention to continue.
During this extended period, the original interest rate applies, ensuring continuity in your savings journey.
However, if the account remains discontinued for less than 1 year during the extension, the interest rate reverts to the national savings account rate.

Premature Closure:

In certain circumstances, you may find the need to prematurely close your RD account.
Premature withdrawals are permitted after 3 years from the date of the initial deposit, subject to certain conditions.
The interest rate applicable for premature withdrawals is aligned with the PO Savings Account interest rate.
To initiate a premature closure, you're required to submit Form-2 to the nearest Post Office branch, facilitating the process seamlessly.

Taxation, Repayment, and Procedural Aspects

In this final segment of our comprehensive guide to the Post Office RD Scheme, we'll cover vital aspects such as taxation implications, repayment procedures, and considerations for minors. Let's dive into the details:

Taxation of Post Office RD Scheme:

Investing in the Post Office RD Scheme offers tax benefits under Section 80C of the Income Tax Act, 1961.
Contributions up to INR 1,50,000 per annum qualify for tax exemption, providing a lucrative avenue for tax-efficient savings.
However, it's essential to note that the interest earned from the RD scheme is taxable in the hands of the investor.
Interest income is added to the taxable income and taxed at the applicable slab rate, with TDS deductions applicable if the interest exceeds INR 5,000 per annum.

Repayment in Case of Death:

In the unfortunate event of the demise of the account holder(s), the repayment process varies based on the account structure.
For single account holders or joint account holders, the repayment is made to the legal heirs or nominees.
Surviving nominees or legal heirs, up to a maximum of three, have the option to continue the RD account with all applicable provisions.
In the case of joint accounts, the surviving account holder can either continue the account or opt for closure, depending on the number of deposits made.

Procedure on Minor Attaining Majority:

Upon attaining the age of 18 years, minors have certain options regarding the management of their RD accounts.
The minor can continue the account by providing a declaration confirming their acceptance of the scheme rules and amendments.
They have the flexibility to continue the account till maturity, extend it for another 5 years, or make premature withdrawals or avail loan facilities as per their discretion.
Additionally, minors transitioning to adulthood can also initiate repayment procedures or opt for advance deposits, enhancing their financial autonomy.

Loan Against Post Office RD:

One of the notable features of the Post Office RD Scheme is the provision for availing loans against the RD account.
To avail of this facility, the account must be active for at least 1 year with a minimum of 12 installments deposited.
Account holders can secure loans of up to 50% of the balance credit in their RD account, providing a convenient financing option.
The repayment terms are flexible, allowing for lump-sum payments or equal installments, with interest rates structured to facilitate borrower convenience.

Wrapping Up:

The Post Office RD Scheme offers a structured and tax-efficient approach to long-term saving, making it an attractive option for individuals seeking financial stability.
By understanding the nuances of deposit timelines, maturity options, taxation implications, and procedural aspects, you can leverage the scheme to achieve your financial goals effectively.
Whether you're a seasoned investor or a newcomer to the world of saving, the Post Office RD Scheme provides a secure avenue for wealth accumulation and financial empowerment.

We hope this comprehensive guide has equipped you with the knowledge and insights needed to make informed decisions regarding your savings journey with the Post Office RD Scheme. Happy saving!