Tax-efficient services available at the post office
When was the last time you visited a post office branch? It's been over a decade that the e-mail replaced the written word, so there's no need to buy stamps, envelopes or inland letters. Besides, thousands of private couriers have mushroomed in the past 15-20 years, giving stiff competition to the speed post and parcel services. So, there's a good chance that you might not have visited a post office for years.
But you should because the bouquet of services offered by India Post has some very interesting and cost-effective products. ET Wealth looks at the financial services that can be availed of at a post office branch and how these compare with similar products from other organisations.
Tax-free bank interest
The interest your balance earns in a regular savings account with a bank is taxable. But if you open a savings account in a post office, the interest is tax-free. If you maintain an average balance of50,000 in your bank account, you would earn roughly2,000 as interest income in a year. In the highest tax bracket, the taxman will shave off 30% (or600) from this income, leaving you with only1,400.
However, if it is a postal savings bank account, the interest earned is tax-free. There is, of course, a ceiling of3,500 per account on this exemption in a year. In case of joint accounts, the ceiling is higher at7,000 a year. But this is a reasonable limit because very few people would keep more than1 lakh in their savings account.
Lower minimum balance
There are other benefits of opening a postal savings account. You don't have to lock up5,000-10,000 in maintaining an average quarterly balance. The post office does not mind if you have emptied out your account as long as you leave500 as balance.
This low-ticket convenience works in case of recurring deposits as well. If you open a recurring deposit with a bank, the minimum monthly deposit is500. In the post office, the monthly contribution can be as low as10, making it an ideal option to start your child on the savings habit. The 7.5% interest is compounded quarterly and compares well with what banks offer. The only hitch is that the post office deposit is for a minimum of five years. However, you can withdraw 50% of the balance after one year.
More facilities on the anvil
Even so, the very mention of the post office conjures images of a stodgy organisation with long queues and obdurate babus filling up pass books manually. That's true to a certain extent, but things are fast changing. India Post is working on a core banking solutions project that will offer state-of-the-art facilities to customers, including ATMs, Net banking, debit cards and e-payment services.
AS Prasad, deputy director-general (financial services), told ET Wealth that by the end of the year, account holders will be able to access their accounts at any ATM across the country ( India Post's AS Prasad on how it to transform into a dominant financial services player ).
