Is Post Office Recurring Deposit (RD) Account Scheme is one of the best recurring deposit scheme in India? Many of us invest in this product. However, we hardly know the rules and regulations of the same. Let us see rules in details.
Who can open Post Office Recurring Deposit (RD) Account Scheme?
The Post Office Recurring Deposit (RD) Account Scheme can be opened by anyone of the below-mentioned individuals.
1. A single adult.
2. Two adults jointly (Remember that in case of joint accounts, the maturity amount will be payable to both jointly or survivor or to either of them or survivor). A single account can be converted into jointly and vice versa.
3. A guardian on behalf of a minor or a person of unsound mind.
4. A minor who has attained the age of 10 years, in his own name. This rules may not be known to many. However, it is the truth that if your kid is 10 years or more, then he can open the account in his name itself. Guardian is not required for such accounts.
A single depositor may have more than one account in his name or jointly with another individual. NRIs (Non-Resident Indians) are not eligible to open the Post Office Recurring Deposit (RD). Also, HUFs are not eligible to open the Post Office Recurring Deposit (RD).
However, if an individual opened the account and after that he becomes NRI, then he can continue the account till maturity on a non-repatriation basis.
There is no maximum age limit to open the Post Office Recurring Deposit (RD) Account Scheme.
Tenure of the Post Office Recurring Deposit (RD) Account Scheme
It is 5 years scheme or 60 months scheme. Therefore, the maturity period will be 5 years.
Minimum and Maximum Deposit in Post Office Recurring Deposit (RD) Account Scheme
- The minimum amount to deposit in Post Office RD is Rs.10 and in multiples of Rs.5.
- There is no such maximum limit specified.
What is the interest rate of Post Office Recurring Deposit (RD) Account Scheme?
Currently, as per the new rules of Post Office Saving Schemes 2016, the interest rate will be declared on a quarterly basis. Hence, while opening the account, you have to track what is the rate of interest for that particular quarter. Based on that the interest will be fixed for your RD. Refer this post for the changes “Post Office Savings Schemes -Changes effective from 1st, April 2016“.
Tax Benefits of Post Office Recurring Deposit (RD)
There are no tax benefits available by investing in Post Office RD. However, the interest income should be considered as taxable income. This interest income will be taxed under the income head of “Income from Other Sources”.
There is no TDS on such accumulated corpus. But it is purely depositor responsibility to declare the income and pay the tax as per his tax slab.
When to deposit Post Office Recurring Deposit (RD) Account Scheme?
The first investment should be at the time of account opening. After that let us say you opened the account between 1st to 15th date of the month, then subsequent deposits must be within 1st to 15th of a month.
However, if the account opened between 16th to the end of the month, then you can deposit on any day between 16th date to end of the month.
If a deposit is made by means of a cheque/pay order/DD, the date of its clearance into the Post Office Savings Bank will be considered as the date of deposit.
Nomination facility in Post Office Recurring Deposit (RD)
You can nominate during account opening time or even after the opening of the Post Office RD at your ease.
What if you failed to deposit or default in Post Office Recurring Deposit (RD)?
# If defaults are not more than 4 months-If your default is not more than 4 months (7 months for personnel of Defence Services (excluding Civilian Defense Employees)), then you can extend the maturity date to equal numbers of such defaults. For example, if you defaulted for 3 months, then you can extend the maturity date to 3 months. You can deposit the defaulted amount during such extended period.
# If defaults are more than 4 months– If there are more than 4 defaults ((7 months for personnel of Defence Services (excluding Civilian Defense Employees)), the account will be treated as discontinued. The revival of the account will be permitted only within a period of two months from the month of fifth default. If the depositor fails to deposit next monthly deposit within this time prescribed, a default fee at the rate of 5 paise for every Rs.5 per defaulted deposits will also be paid along with a regular monthly deposit.
If you deposited all defaulted deposits along with prescribed default fee and within a prescribed time, then the account will not be treated as discontinued.
Advance deposit facility in Post Office Recurring Deposit (RD)
You can deposit in advance into your Post Office Recurring Deposit (RD). But the minimum such advance deposits are 6 monthly installments. You can opt this option at any point of time in a month. There is a rebate for such advance deposit and it is as below.
# If you deposit more than 6 but less than 11 installments in advance in a month-Rs.1 discount for each Rs.10 installment. Therefore, if you are depositing Rs.10,000, then the discount is Rs.1,000.
# If you deposit more than 12 installments in advance in a month-Rs.4 discount for every Rs.12 deposits and one rupee for the balance, if any, of not less than six deposits.
Premature closure of Post Office Recurring Deposit (RD)
You are allowed to close the Post Office Recurring Deposit (RD) at any point of time after 3 years of completion. But you will not receive the RD interest rate on such premature closure account. Instead, Post Office will pay you the savings account interest rate.
However, premature closure is not allowed until the period for which the advance deposit made in cases of advance deposit in RD.
Whether you can extended the Post Office Recurring Deposit (RD)?
Here you have two options to extend and I explained the both as below.
1) Extension of Post Office Recurring Deposit (RD) with the contribution
If you completely paid 60 monthly installments at maturity time, then you can extend the account for further 5 years. However, this extended account is considered as fresh account for deposit and interest rate calculation. The new RD rules will apply to such extended account.
The only exception during this extended period is that you can discontinue the account at any point of time. There is no such hard rule that you must complete another 3 years to close it.
However, you will not receive the RD interest rate for such premature closure accounts. Post Office will pay you the savings account interest rate.
2) Extension of Post Office Recurring Deposit (RD) without further contribution
If you completely paid the 60 monthly installments at maturity time, then you can extend the account for further 5 years without any further contribution.
However, if you closed the account before the 5 years (at any point of time you can close it), then you are entitled for the post office savings account interest rate.
What if the depositor dies before the maturity of Post Office Recurring Deposit (RD) Account?
In the case of the death of depositor in a single account or both in joint accounts, your nominee will not be allowed to deposit in such accounts.
Nominee or legal heir is allowed to withdraw the full value of RD account as of today immediately.
However, below is some exception to it.
If 5 years completed but not extended, then such account will be eligible for savings account interest rate (for the period of the days after maturity).
If less than 5 years completed, then nominee have rights to withdraw the money at the time of maturity, then the savings account interest rate will be applicable for such amount to till maturity period.
In the case of joint accounts, if one holder dies, then the surviving holder can continue the account as usual. However, if the surviving account holder wish to close the account, then he can close it at any point of time.
In the case of death of a guardian, the new guardian may close the account at any point of time.
Advance withdrawal facility in Post Office Recurring Deposit (RD)
If your account is not in a condition of discontinued, then you are allowed to withdraw after a year (or 12 installments paid) but not more than 50% of the deposits made into account.
You can repay at any point of time before the closure of an account. They charge some simple interest on such withdrawal.
If you have not paid the due advance and interest on that, then at maturity time, then during payment such withdrawal is recovered and paid to the depositor, nominee or legal heirs as the case may be.
Procedure of minor attaining the majority in Post Office Recurring Deposit (RD)
- Minor can continue the account till maturity by writing a letter to Post Office as ““I hereby declare that the Post Office Savings Bank General Rules, 1981 and the Post Office Recurring Deposits rules 1981 have been read by/to me and that I accept the said rules and all such amendments thereto as may be issued from time to time as binding on me”.
- If he intends to stop then he can do so by claiming the proportionate amount.
How to open Post Office Recurring Deposit (RD) Account Scheme?
# First select the Post Office where you want to open the account. Remember that you can transfer the account anywhere in India at a later stage.
# Fill the Post Office Recurring Deposit (RD) Account Opening Form. Download the same HERE.
# Furnish all details provided in the form like PAN details, address proof, nomination details.
# You must carry original PAN Card, Address Proof, and ID proof for the in person KYC verification purpose.
# Submit the same and start operating the account.
Post Office Recurring Deposit (RD) Account Scheme -Best recurring deposit plan?
After reading all features and benefits of the RD, do you feel that it is BEST RECURRING DEPOSIT PLAN? My thoughts are as below.
# Liquidity is an issue. Hence, I try to avoid the product as much as possible.
# Online facility of deposit is yet to takes place. Hence, operating the account may be cumbersome (Only option is to link the post office savings account to the recurring deposit account for standing transfer instruction to the RD.)
# There is no tax benefit. Hence, no point in investing for your 5 years goal as a debt instrument. Instead of that, short-term or ultra short term debt funds feels more tax efficient.
# Treat this product as debt product. Hence, safety, liquidity, and tax efficiency must be your priority rather than return expectation.
# Rules may confuse many or few Post Officials may not know the rules completely. This may turn to be the biggest hazard in investing and operating RD account.