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An introduction to Post Office (PO) Recurring Deposit (RD) Account

Apart from various banks, the Post Offices in India also offer recurring deposits. Here’s all you would want to know about the PO RD accounts.

In “An introduction to Recurring Deposit”, we understood what a recurring deposit is. We saw how it works, and also studied its characteristics. We also saw how it compares with a mutual fund (MF) systematic investment plan (SIP).

Most banks offer a recurring deposit. But apart from banks, the Post Office also offers an RD account.

And many people, especially staying in rural areas where banks have a lesser presence, may prefer to open a recurring deposit account in a post office.

Let’s see the details of the recurring deposit account offered by the post offices in India.

 

Duration / Tenure

The Post Office Recurring Deposit (PO RD) account can be opened for 5 years.

 

Extension of Account

After the initial 5 years get over, the account can be extended by 5 years any number of times. That is, on maturity, you can continue the account for another 5 years.

 

Interest Rate Offered

The rate of interest earned in this RD account is 7.5% per annum, compounded every 3 months (quarterly).

 

Investment Amount / Denomination of the Account

The amount of each monthly deposit is known as the “denomination” of the recurring deposit account. It is fixed at the time of opening the account, and remains the same during the entire term of the RD account.

The minimum amount per monthly deposit is Rs. 10. There is no upper limit – the only condition is that the deposit amount has to be a multiple of Rs. 5.

Each deposit in the recurring deposit account has to be of the same amount. Each deposit has to be made before the end of the calendar month.

 

Premature Closure of the RD Account

Premature closure of the recurring deposit account is allowed 3 years after opening the account. In this case, the interest paid would be equivalent to the interest offered on the PO Savings Account.

An extended account (an account extended after the completion of the initial 5 years) can be closed at any time without any penalty.

 

Withdrawal / Loan Facility

A loan can be availed from the PO RD account after the account has been in operation for at least 1 year. The rate of interest for such a loan would be 2% over and above the interest rate on a 5 year PO fixed deposit at the time of taking the loan.

The loan can be repaid in a lump-sum, or in equal monthly installments along with the monthly RD payment.

If the loan is not repaid, the loan amount and the interest payable on it are deducted from the amount payable at the time of closure / maturity of the account.

 

Rebate on Advance Deposit

If deposits are paid as a lump-sum in advance, a rebate is offered as an incentive.

If 6 to 11 deposits are paid in advance, the rebate offered is Rs. 1 per Rs. 10 of account denomination.

If 12 or more deposits are paid in advance, the rebate offered is Rs. 4 per Rs. 10 of account denomination.

Thus, if you have an account of denomination Rs. 100 (payment of Rs. 100 each month), and you pay 7 installments in advance, you would have to pay Rs. 690 instead of Rs. 700.

If you pay 12 installments in advance, you would have to pay Rs. 1160 instead of Rs. 1200.

 

Nomination Facility

Nomination facility is available for the PO RD account. You can make a nomination at the time of opening the account, or any time during its tenure.

 

Income Tax Treatment / Benefits

There is no Section 80C benefit available on deposits made to the post office recurring deposit account.

(To know more about tax benefit through Sec 80C deductions, please read “Saving Income Tax – Understanding Section 80C Deductions”)

There is no tax deducted at source (TDS) on the interest that you earn in the post office recurring deposit.

 

Retention of maturity proceeds

After the PO RD account matures, you can choose not to withdraw the final amount and can continue the account for a maximum of 5 years without making any further deposits.

The amount in the account would continue to earn interest in this case. The interest paid would be equivalent to the interest offered on the PO Savings Account.

 

Safety of Investment

Since post offices are operated by the Government of India, your investment in a PO recurring deposit is risk free.

 

Who can open the account?

The PO RD account can be opened in a single name or in joint names. If opened jointly, the maturity amount can be paid on a “both or survivor” or “either or survivor” basis.

The account can also be opened for minors. If the minor is more than 10 years of age, the account can be opened in his own name. For a minor younger than 10 years, the account can be opened by a guardian on behalf of the minor.

A passbook is issued at the time of opening the account, and all deposits are entered in this passbook.

 

PO RD Account and NRIs / PIOs

A Non-Resident Indian (NRI) or a Person of Indian Origin (PIO) can not open the post office recurring deposit account.

If a person opens the PO RD account, and subsequently becomes an NRI, he can continue the PO RD account till its maturity.

 

Where can the account be opened?

Its easy – the PO RD account can be opened in any post office.

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  1. If 12 or more deposits are paid in advance, the rebate offered is Rs. 4 per Rs. 100 of account denomination and not 4 per 10.

    It is just 4 % not 40% ….

  2. Anonymous says:

    Hi Bhadran,

    The rebate is Rs. 4 per Rs. 10 of account denomination if 12 or more deposits are paid in advance – and this doesn’t amount to 40%.

    For Rs. 100 denomination account, you pay Rs. 1,200 in a year. The rebate is Rs. 40 (Rs. 4 per Rs. 10 account denomination – so Rs. 40 for Rs. 100 account denomination).

    So, you would pay Rs. 1160 instead of Rs. 1200 – a discount of Rs. 40 on Rs. 1200, which is a mere 3.33%.

  3. Anonymous says:

    Hi Sanjeev,

    No income tax deduction / rebate is available for a recurring deposit, even if the duration is 5 years or more. This applies to post office recurring deposit as well – there is no income tax benefit.

  4. whether 5 years post office recurring deposit tax rebate u/s 80-c for f.y. 2008-2009 available or not.

  5. I think the rebate calculation done is wrong…

    Rs 4 for every 10 Rs amounts to 40 percent rebate…

    The correcct calculations are –
    Rs 100 monthly amounts to 1200 per year
    Rebate of Rs 4 per Rs 10 amounts to Rs 40 per Rs 100 and Rs 480 for Rs 1200

    total – 1200 – 480 = 720 Rs – which is not true…

    So the rebate is 4 % for Rs 100 and not Rs 10… which will give you 1160 Rs as final rebate amount…

  6. Anonymous says:

    Hi Samp,

    Please see my reply to the first comment “Rebate on Advance Deposit” by Bhadran.

  7. ajoyroy12 says:

    asthe subject above.

  8. Hi Ajoy,

    Yes, a written application is required.

  9. Sunil agarwal says:

    Sir, if we open RD A/C in indiapost of rs1000 and deposit 1000 only and withdraw on maturity in 5yrs.so post office give interst rs 215 .
    So if we calculate simple interst of 7.5% of rs1000 its interst becomes rs 375.
    So my question is what is the rate of interst of discontinue RD on maturity.

  10. SUNIL AGARWAL says:

    Sir,give answer of my simple question.
    1.what is the rate of interst in continued RD on maturity indian post.
    2.what is the rate of interst in discontinued RD on maturity indian post.
    3.what is the rate of interst in continued RD on prematurity indian post.
    4.what is the rate of interst in discontinued RD on prematurity indian post.

    • SHANMUGAM says:

      DEAR SIR,
      For
      1. Continued RD interest rate is 7.5% compounded quterly
      2.for Discontinued RD Account is also 7.5% but proportionate amount will be paid
      3.for PMC(premature closure) the account literally speaking become a PO Savings account (Now interest 3.5% simple)

  11. Dr. Asfak Motiwala says:

    Actual rebate given is 3.33 % then what is the sense saying 4 %. This is actually cheating.

  12. Sunil agarwal says:

    Sir, i one written reply from regional director of assam of N.S.I of Minstree of finance guwahati(assam) that there is no govt. Notification in 5 year RD.
    but did not write directely there in no rate of interst in 5YEAR RD of INDIAPOST.SO PLEASE ENQUERY THE MATTER AND REPLY.
    Thanks.

  13. Sunil agarwal says:

    Sir, i write some mistake so first i want sorry in my is mistake is i write there in no govt. Notification RD for 5 year.and correct is there in no govt. Notification on rate of interst in RD for 5 year.
    So i again sorry and see correct and reply.
    Thanks.

  14. Ajey gupta says:

    Firstly thankyou raagvamd, for an unbiased and such informative analysis. Can you help me with this,

    Actually I had invested in a 5yrs PO RD whose annual interest I didnt added in my annual income at time of tax calculation for five years. Had I done that the Intt amount would not have imposed any type of tax but now I am to recieve accumulated deposit along the intt and this will take my income in taxable range. Is there a way out for dealing with the situation.

    Thank you

  15. Is there any other benifit apart from 7.5% intrest

  16. Sunil agarwal says:

    Sir, i open an RD a/c of rs 1000 per month on dt app. 05/05/2008 and dep only rs 5000.so after that not dep in this discontinue a/c yet on dt 29/01/2010.
    So , i want to restart this a/c .
    There fore any rule to restart this RD a/c.

  17. I have a PO recurring deposit for a 5 years term with a monthly payment of 5000 rupees. It has been exactly a year now, and I want to cancel the account. Can I do that? If yes, how much money do I get back? How much time does it usually take to get the money back once the account is cancelled. Appreciate your help.

  18. Vijay Kumar Agarwal says:

    can i say that post office reccuring deposit account act as a saving a/c of banks but in that post office give high interest? am i right or wrong? because in rd we r not getting any tax benefit.

  19. I want to invest 30k monthly in RD in PO.. after 5 years i ll get what amount of money?

  20. Karthik Reddy Chintaparthi says:

    Hi,

    If a person invested 1000 rs per month for about 5 years. Will he be able to draw the entire amount out of the account post 5 years with zero tax ? If there is no TDS does it mean interest is completely tax free ?

    Cheers
    Karthik

  21. Sardar Kripal Singh says:

    i have to have a recurring deposit account what are the document required. please inform about this.

    Regards
    Kripal

  22. Harsh Nagar says:

    please tell me highest rd interest rate in banks or in post office

  23. Let me know whether post office recurring deposit can be continued even after extending it for 5 years i.e. beyond 10 years.

  24. Sir, i had open an RD A/C for 5 years of Rs.200 per month. What will i get after maturity.

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