Sunday, May 9, 2010

Post Office Time Deposit (T.D.) for Deduction u/s 80C


Post Office provide us to deposit your money for 1,2,3 or 5 years. It is called T.D. (Time Deposit). T.D. gives us interest on annual basis. After one year when we do not withdraw interest amount. Postal department keeps the amount of interest as it is. I mean to say no further interest on one year interest. Some example to clarify the same is given as under :-

Our Deposit Amount in 2 Year T.D. = 1,00,000/-
Interest Rate for 2 Year T.D. =6.50 % w.e.f. 01.03.2003
Annual Interest Amount = 6,660.00

How to calculate Interest
Interest Rate is = 6.50% annual
Quarterly Rate will be = 1.625 % each quarter
Formula = (Quarterly Rate/100) + 1 = (1.625/100 )+1 = 1.01625
Total Interest Rate will be = 1.01625 x 1.01625 x 1.01625 x 1.01625 = 1.0666015
Now Interest Amount = (Principal x 1.06666015 ) - Principal
= ( 100000 x 1.0666015 ) - 100000
= 106660 - 100000 = 6660.00
in this way interest is Rs. 6660.00
The above calculation has been done like as calculation of Interest of F.D.R.'s in bank.

Who can Invest
An individual can invest in T.D. as single or joint in the multiple of Rs. 200/-. There is no maximum limit for deposit the amount in T.D.

Interest Rates of Time Deposit on or after 01.03.2003.
Period of Deposit Rate of Interest
1 year 6.25 %
2 years 6.50 %
3 years 7.25 %
5 years 7.50 %

It is already clarified in above example that rates are compounded on quarterly basis.

Withdrawal Facility
Withdrawal can be made after 6 months of deposit. Interest will not be payable if withdrawal is made after 6 month but before 1 year. If withdrawal is made after 1 year (in case 2, 3 , 5 yearly T.D.) interest shall be payable at a rate 2% less than the rate applicable to the period for which the deposit has run.

Income Tax Benefit
Amount invested in post office Time Depsoit (T.D.) for five (5) years is eligible to deduction u/s 80 C. When account is opened as joint. The first name holder of the deposit can avail the benefit u/s 80C.

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