Post Office Monthly Income Scheme

Post Office Letter Boxes, EC1A 1AA .London Chief Office 1994photo © 2008 Felix O | more info (via: Wylio)

Couple of weeks ago, I wrote about Monthly Income Plans or MIPs, and this week I’m going to write about a similar monthly income scheme from the Indian post office called the Post Office Monthly Income scheme.

This is a fixed income scheme which provides you a guaranteed return on your investment, and is meant for people who are looking for a monthly source of income without taking any risk at all.

Where the mutual fund MIP invests a part of its assets in equity, and even gold in some cases – and may sometimes even get you a higher than 10% return (with commensurate risk of course) this scheme has a fixed rate of return and is meant for people looking for an ultra safe investment.

Here are some features of this scheme.

Post Office MIS Interest Rate

This is a scheme from the Indian postal service that earns you an interest of 8% per annum, and generates a monthly income for you.

So if you invest Rs. 100,000 in it – your annual interest at 8% will be Rs. 8,000, and you will get Rs. 666.67 monthly.

Post Office MIS Tenure

The maturity period of the scheme is 6 years, at the end of which you will get your money back. You cannot redeem your money within a year, but you can redeem it after that upon paying a penalty.

Here is how that works.

Less than 1 year: MIS can’t be encashed.

1 – 3 years: You are penalized 2% of deposit.

After 3 years: You are penalized 1% of your deposit.

5% Bonus

If you retain your Post Office MIS till maturity (6 years) – at the end of the time period you will be given a 5% bonus on your deposit.

Minimum and Maximum Investment

The minimum sum you can invest is Rs. 1,500, and you can go up to Rs. 450,000 in case of a single account, and Rs. 900,000 in case of a joint account.

Tax on Post Office MIS

There is no TDS on the Post Office MIS, but the interest income is taxable in your hands. The interest income from post office MIS used to be tax free under section 80L, but that section has been withdrawn from April 1 2005.

Interest can be automatically credited to your bank

At the time of opening the scheme you can give in your bank account details, and interest will be automatically credited to your bank every month.

Transfer from one post office to another

There is a provision that allows you to transfer your money from one post office to another. So, if you opened your account in one post office, and moved to another place you can fill up a transfer form with them, and move your scheme to another post office.

Conclusion

This scheme is meant for people who are looking for an ultra safe investment and a regular source of monthly income on top of it. A lot of retired people will fall under this category, and if you fall under that category then you need to evaluate other options like the Senior Citizens Savings Scheme before you invest in this scheme. I”ll cover that scheme in the days to come, and if you have any questions about this particular scheme or any other observations please leave a comment.

255 thoughts on “Post Office Monthly Income Scheme”

  1. Tax Treatment for Bonus under Post Office Monthly Income Scheme

    Under above scheme, bonus equal to 10% of the Principal amount of
    deposit is made by post office in case withdrawl of deposit is made
    after expiry of the prescribed period of deposit i.e. 6 years. What
    tax treatment is to be made for above receipt?
    (1) Whether the same is to be treated as receipt of interest and
    is to be offered for tax
    (2) Whether the same is to considered as capital gain in spite
    of the fact that the amount invested is an investment and not
    capital assets.
    (3) Not liable to tax at all.

  2. Hi

    My quesion is to you, on redemption of Post office MIS scheme How I treat the bonus part on redemption should I treat long term capital gain and take the benefit of indexation. Please advice on this issue.

    Regards
    Ankit

  3. i had invest rs. 600000=00 in mis (post office scheme) date -26-4-2006. i have entitiled for bonus. if yes how much .

  4. Hi,
    Now you have the option of extending the RD up to 10 years though your MIS account will not earn interest if it stays beyond the stipulated 6 years.
    however with the RD you have the option of continuing with Deposit, or without Deposit, upto a period of 10 years. Now the post office allows auto debit from MIS account to RD.you also have the option of paying for the RD by annual mode incase you do not want to go to the post office everymonth.You can give automatic credit to your SB and draw and pay everyyear annually for which you will get a reabate of 400 rupees for every thousand for annual payment.

  5. Hi Chaps,

    Thanks for the posts. However, I discovered some problems with the values shown by the calculators on the PO website which I am explaining below.
    For Rs. 60,000 in MIS the calculator displays the following values –
    Monthly Interest = 400
    If Monthly Interest is deposited in RD account –
    Maturity Value = 36403
    5% bonus of MIS = 3000
    Total gain = 39403
    Per year = 6567
    Percentage interest = 10.945

    The maturity value for the RD assumes that the RD runs for 6 years whereas in reality it only runs for 5 years, in which case the interest is Rs. 29156. The RD effectively matures an year earlier than the MIS. So I am not sure the percenatge interest being shown actually is accurate.

  6. I want to know whether the maturity amount (Principal Amount +Bonus) of Post Office MIS is liable for Taxation at the time of maturity.Secondly,whether the monthly interest earned on the Deposits in MIS are fully taxable or is there any rebate/concession available under any section of Income Tax Rules
    Vilas Vasant Patki

    1. The interest earned is taxable, and to the best of my knowledge there is no way to avoid that. I’m however not 100% if there is absolutely no way to avoid that because there might be a way to invest it somewhere that I’m not aware of. Ordinarily it is taxable though.

    2. There will be no tax on the principal amount invested, but you will have to pay tax on the bonus amount receivable on maturity, talking about the Monthly interest earned on the MIS it is fully taxable and advisable to show this amount while you file your yearly IT returns.

  7. As far I am aware, you can have deposit of Rs: 4.5 Lakhs in Single name and 9 Lakhs in joint names.

    The rate of interest is 8% with 5% bonus on Maturity.

    You have the option of DIRECT CREDIT to your ANY SAVING account with any bank.

    Interest is exempted u/s 80C under the overall limit.

    It is a good and Safe investments and highly recommend everyone for utilising this investment limit to the fullest, if you are not requiring the fun in the near future.

  8. i want to know if the form for transfer of POST OFFICE MIS can be downloaded from internet, as i am out of town and not able to get this form
    thnx
    minipunjrath

  9. Many Thanks to the writer and the followers for sharing very vital information about MIS.

    The question I have is, for 1500 Rs. investment, 8% of interest gives 120 per year. So, monthly 10 Rs.

    But, in a website, it has been mentioned 8% interest and income for 1500 Rs. is 7 Rs per month. Can somebody add more light?

    This is the URL:
    http://www.tamilnadupost.nic.in/fsvc/banking_mis.htm

  10. Hello EveryBody! Really a good place for some nice basic knowledge & advanced too.

    Regarding MIS + RD together:

    As per the link provided by Dear Nataraj, if we invest say Rs. 15,000 in MIS & deposit the monthly interest (Rs. 100) in RD A/c, the proceed we receive after 6 years is –

    From RD Maturity – Rs. 9101/-
    From MIS Principal – Rs. 15000/-
    From 5% MIS Bonus – Rs. 750/-
    TOTAL – Rs. 24851/-

    If we open NSC A/c with the same amount i.e. Rs. 15000/- as Principal, we get Rs. 24015/- as maturity value at the end of 6 year.

    So Net Gain in 6 Years is Rs. 836/- [for an initial investment of Rs. 15000/-]

    Plus of MIS + RD : Extra Interest of Rs. 836/-

    Minus of MIS + RD : No tax benefit u/s 80C + No treatment of accrued interest in the subsequent years for the purposes of 80C benefit.

    Thanks.

  11. as per rbi site some specific branchesh of nationalize banks are entitled for mis scheme like uco bank branch office ghumarwin
    do u knaow about other branches and what is procedure?
    as bank employees themselves don,t know about that

  12. Hi,
    Just to add, Now you have the option of extending the postal RD upto a period of 10 years
    The six Year maturity value (to Correspond with the MIS maturity date ) for RS10 RD is 910.08.

    1. I’m not quite sure I understood what this means. The RD will last for 10 years, or the MIS can be extended for another 6 years, could you please elaborate?

      1. Hi,

        Firstly, my applauds for such a useful site…
        I would also like to get some clarity on the how the RD works. It would be great if explained by an example.

        1. Thanks Kunal – Recurring Deposits involves depositing a sum monthly, and then having it compound, and grow for a fixed period. You can open a RD with a bank or a post office. I’ll see if I can do a post on this topic.

  13. DOn’t u think investment in NSC gives the same return + we don’t have to depend on the agent(with the number of frauds happening these days). How can we ensure that the money received as monthly interest is depostited in the RD account every month by the agent.

    1. NSC doesn’t have a monthly return option so that makes a difference for people specifically interested in the monthly income. I don’t think they yield ~10% do they? I remember it being in the 8% range.

      Plus I’d do this myself if I had to get into this, it’s not necessary to go through an agent, and you can always monitor the account to see nothing is amiss.

  14. Sure, This is very safe & high return (as of now) investment. This scheme can work together with MIS+ interest going directly into RD (RD is for 5 yrs only) incase monthly income is not necessary. For ease of monthly interst calculations investments in mulltiples of Rs. 1,500 is idle. as Rs. 1,500/- earns interest of Rs. 10 a month.

  15. I research a lot on this long back. Take a look at this link on their official website-
    http://www.indiapost.gov.in/netscape/6yearsMIS.html

    The thing that turned me on was the option to reinvest the monthly interest as a recurring deposit – which will make it 10.5% assured interest. (which was kind of highest assured interest I could find across board).

    But then the thing that turned me off was – no computerization/online modes etc – so we need to goto post office to setup and check. (harder for me as I am sitting in USA) – still it is one of the options I am exploring to do when I return to India.


    Below excerpts is taken from their website-

    Deposit in Monthly Income Scheme and invest interest in Recurring Deposit to get 10.5% (approx) interest.

    Above scheme operates automatically, if you open a saving bank account and give a request for automatic transfer of Monthly Income Scheme interest to Recurring Deposit through Saving Bank account.

  16. I would like you to comment on Postal MIS with interest going to monthly Postal Recurring Deposit scheme…instead of cumulative FD in a bank…..

  17. Hi Friend,
    This scheme is very useful for those who have money to invest and they want to play a safe game, POMIS will give regular return on regular intervals and we can get the money back after the decide period.

    1. Don’t they have the option of investing in this Senior Citizen’s Savings Scheme which has a higher rate? I read about it somewhere but can’t recall on the top of my head if that gives out a higher rate and by how much.

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