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 The interest income from post office MIS used to be tax free under section 80L, but that section has been withdrawn from April 1 2005.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.
what should be the minimum age of a person for investing amount in post office MIS.
Ten Years; a minor of 10 years and above age can open a Post Office MIS account.
Thanks Manshu,but considering limit of 4.5 lacs for each sharer,Are u sure it’s possible to get full control of 9.0 lacs in Mis joint acct of 2 people?Any references would be highly appreciated.
Sourabh – I’m sorry I didn’t realize you were also referring to the 9 lakh limit. That is a good point and I guess why else would you be interested in the question if you weren’t near the limit.
You shouldn’t get control of the full 9 lakhs and you will have to give them a death certificate immediately so they can tell you how to proceed. I’m sorry about my earlier comment. I made a mistake in fully understanding your question.
Hi Sourabh and Hi Manshu… I want to add this info here – “If one of the depositors/joint holders of a Post Office MIS account dies, the account will have to be converted into a single account in the name of the surviving depositor from the date of death of the said depositor when a report to this effect is received in the post office. The Post Master/Senior Post Master will ask the surviving depositor to withdraw the excess amount, in excess of the limit prescribed for single depositor (Rs. 4.5 lakhs at present), as this amount will not carry interest from the date of death of the joint depositor. The interest already paid on this excess amount will be recovered or adjusted.”
Dear Shiv,
In this case, if the penalty (1% or 2 % depending on the time period) will be applicable while withdrawing the excess amount. Also what will happen to the 5% bonus.
Regards,
Dear Himanshu,
No penalty is applicable in case of death of the depositor/joint holder in Post Office Monthly Income Scheme (POMIS). Also, as per the Manual of Post Office, “The MIS Rules clearly provide for payment of bonus where admissible on completion of maturity period of the account irrespective of the fact as to whether the account holder is/was alive or not on the date of maturity”. So, it looks to me that the bonus of 5% will be paid in full on the original deposit of Rs. 9 lakhs on maturity i.e. Rs. 45,000 (5% of Rs. 9,00,000).
Dear Shiv,
Thanks for the reply. Still confused regarding the bonus. Why the Post office will pay bonus for full Rs 9 lakhs while Rs 4.5 lakhs are already withdrawn before maturity as a excess deposit money after the death of joint holder.
If there is any issue in keeping the deposit as it is and no excess deposit is withdrawn. After maturity the deposit amount can be taken on the name of the surviving depositor.
Regards,
Dear Himanshu,
I dont know the precise logic behing them paying 5% bonus even after the withdrawal of the excess amount but the language of the Post Office Manual is there for everybody to refer. As per the Manual, the bonus is payable on maturity even if the account holder is not alive.
I have not faced any such case with any of my clients, but I think one can confirm it with the Post Master/Senior Post Master, if required. This is probably some kind of “Bullet Payment” provision which is there with the PO MIS.
Thanks Shiv,
Please suggest –
If there is any issue in keeping the deposit as it is and no excess deposit is withdrawn. After maturity the deposit amount can be taken on the name of the surviving depositor.
Regards,
No interest will be paid on the excess amount from the date of death of the joint depositor. The interest already paid on this excess amount will also be recovered or adjusted.
Hello,
My brother has a similar case that is being discussed here.
Could you give a link that provides this rule? I mean where can I find this manual ? I need to quote this “on completion of maturity period of the account irrespective of the fact as to whether the account holder is/was alive or not on the date of maturity”
Regards
What if one of joint account holders of MIS dies?Should joint account still be continued?
Please transfer the account in your name in such a case.
If I want to invest (4.5L) in the name of a minor (3 years), is this a better option and what is the tax implication as I;m a housewife and received this money from sale of an ancestor property?
thanks
thankyou ….. great help
jus a little confusion ..
“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.”
so this means there is no further tax reduction on 666 pm since 2005 ??
Hi Rahul… It is an old article. The current interest rate on POMIS is 8.5% per annum payable monthly, there is no TDS but it is fully taxable i.e. you will have to add the interest earned in your taxabale income.
i want invest 3-4 lakh in safe jone investment like MIS inpost office,kindly guide me by mail whre is invest.
I have invested rs 900,000 on mis joint account on 11 Jan 2011, Is max limit of rs 900,000/- on 11 Jan 2011 is cirrect.
Yes, Rs. 9 lakh is the maximum investment limit in PO MIS in a joint name.
I want to take Small Saving Agency in karnataka., what is the procedure. kindly send me mail please.
Hi Srithar… You need to contact the Post Office for the exact procedure.
can we take 80c deduction in mis scheme deposit
Regret to inform but you cannot claim deduction under section 80C for PO MIS. Instead you are liable to pay taxes for the Interest earned for the particular financial year.
can we take 80c deduction in mis scheme and koun2 iska benefit le skte hai
plz send any penssion plan for me…my d.o.b. 1st oct 1979.
If a lady has invested Rs. 9,00,000/- in MIS and like wise getting Rs. 6,000/- interest every month. the a/c is opened jointly with her son.
so will Rs. 72,000/- shall be taxed in the hands of the lady or Rs. 36,000/- each shall be taxed in the hands of the lady as well as her son?
Hi Karan… As per notification no. G.S.R. 706 (E) dated 5.9.2000 related to Post Office (Monthly Income Account) – “the depositor’s share in the balance of a joint account shall be taken as ½ or 1/3rd of such balance held in a joint account opened by two adults or three adults respectively.”
But the taxability of the interest income from POMIS joint account depends on the source of capital invested. If the son is not minor and his income has also been used to make the investment, then the interest income should be taxable in the hands of both the applicants in the proportion of the capital invested. If the mother has contributed all of the capital then the interest income will be added to the mother’s income in full.
thanx for your advice..it was really very helpful! 🙂
You are most welcome Karan!
Thank you for your response. On the same web page the below content is displayed for your information, to state that tax was imposed only from 1.04.2005.
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.
:-)… There is a big difference between being totally Tax-Free and getting an exemption u/s 80L to make your income from these investments tax-exempt. Prior to April 1, 2005, one used to get a tax deduction of Rs. 12000 u/s 80L from interest on bank deposits, tax saving bonds, NSCs, POMIS among others.
All the interest income used to first get added to determine your gross taxable income and then deduction u/s 80L was applied. That ways interest earned over and above Rs. 12000 from all these instruments was taxable. This is on similar lines as we get exemption u/s 80C or 80D these days.
The difference lies in the language used to tell people that upto Rs. 12000 POMIS interest income was tax deductible. Interest income has always been taxable and TDS is never applied on POMIS. So I think nobody stands a chance to appeal against this Govt. notification. Sorry…
I’m not sure why but this blog is loading very slow for me.
Is anyone else having this problem or is it a issue on my end?
I’ll check back later on and see if the problem
still exists.
i got pomis wef nov 2004 during which time bonus and monthly interest NOT TAXABLE. but govt of india has later said tha interest and bonus are taxable wef 1.4.2005 . It is unfortunae from the point of depositer bcause…any scheme once entered will not be changed till its maturity. govt may apply new conditions for the schemes enterd later to 1.4.2005.in this scheme amount locked for 6 yrs.ie not allowed depositer to with draw.but new condition of tax has been imposed.it is g.ross injustice. my contention is that tax should not be imposed till its maturity.pl CLARIFY
Hi kjsarma… As far as I know, POMIS interest and bonus was always taxable even before April 1, 2005.
Dear Shri Shiv Kukreja,
I refer your comments / reply given in respect of the query raised by Mr. KBR DHAWAN on 18.7.2012. You say that the Bonus amount is Taxable. May I know, under what authority you confirm your statement. Is there any Section confirming your reply? Please clarify.
– SUNIL CHOPRA
Hi Mr. Sunil… It is as per DG Posts letter No. 97-7/89-SB dated November 20, 1990:
http://www.tribuneindia.com/2012/20120108/biz.htm
DG Posts letter No. 97-7/89-SB dt 20.11.1990 states that the CBDT have clarified that the bonus payable under POMIS shall be treated as interest and will be taxable. Therefore, the same cannot be treated as capital gains.
Please clarify whether the Maturity Bonus received under the Post Office Monthly Income Scheme is taxable or tax free.
It is taxable.
Post office Monthly Income Scheme used to pay 10% / 5% Bonus on maturity after six years in earlier years. My querry relates to income tax.
I am given to understand that the INTEREST income from the said M. I. Scheme is taxable but it is not clear whether the amount of 10% / 5% BONUS received on Maturity is TAX FREE or TAXABLE in the hands of the Account holder. Please give me a confirmed information as someone has to file tax return.
Dear Sir,
I invite your kind attn to my query posted just now. In it please read the date of investment as 28.6.2006 and not 28.6.2010 as mentioned in it. Sorry for the trouble.
Thank you.
Your PO is right in your matter, Maturity Bonus is not applicable for your MIS. For more information you may please refer my reply to the query of Shri. Aman Wadhwa, it is in the same context.
Thank you, Sir.
Yes, that is right – you wont get any maturity bonus of 10%. The maturity bonus remained discontinued for the investments done on or between Febryary 13th, 2006 and December 7th, 2007.
Thank you, Sir for your kind reply.