Post office savings schemes are popular because of government backing, regular returns, and easy availability. None of them, however, is tax-free. Some schemes attract TDS (Tax Deducted at Source) depending on the interest earned. Being aware of where TDS applies and where it does not can prevent unexpected surprises when you receive your returns.
Where TDS applies
Interest earned on Post Office Time Deposits, Recurring Deposits, and Monthly Income Schemes under Section 194A of the Income Tax Act is subject to TDS if it exceeds ₹40,000 during a financial year (₹50,000 in the case of senior citizens). The post office will deduct TDS at 10 percent on condition that the investor's PAN is available. Otherwise, the rate goes up to 20 percent.
Where TDS is not applicable
Post office savings accounts like the basic Post Office Savings Account are exempted from TDS, though interest is levied for tax if it is over ₹3,500 in individual accounts and ₹7,000 in joint accounts within a year. Similarly, schemes like Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY), and National Savings Certificates (NSC) are exempted from TDS, though maturity proceeds can have other tax implications under exemption provisions.
How to avoid excess deductions
Investors can submit Form 15G (for taxpayers below 60 years of age) or Form 15H (for senior citizens) to avoid TDS if their aggregate income falls below the tax threshold. Submission of PAN and timely declarations avoids unwanted deductions. Even if TDS is deducted, taxpayers can avail refund at the time of filing income tax return if their combined income is below the tax limit.
Why tax awareness matters
Knowing which post office schemes deduct TDS helps investors plan properly and makes informed investment decisions. Small investors, particularly retirees who have regular income from post office schemes, must keep a close eye on their annual interest income to avoid instant tax slashes. With pre-planning for taxes, post office investment can still remain a safe and hassle-free option.
FAQs
1. Is TDS being deducted on PPF or Sukanya Samriddhi accounts?
No, no TDS is being deducted from PPF or Sukanya Samriddhi accounts since they are exempted under Section 10 of the Income Tax Act.
2. What will happen if I don't give my PAN to the post office?
In the absence of submission of PAN, TDS on schemes eligible is being deducted at 20 percent instead of the normal 10 percent rate.
3. Is refund available in the event of over-deduction of TDS?
Yes, you can claim a refund while submitting your return of income if your total tax liability is less than the TDS already deducted.
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