Post office savings account:

Post office saving account is similar to a savings account in a bank. It is a safe instrument to park those funds, which you might need to liquidate fully or partially at very short notice. Post office savings accounts are especially suited for those living in rural and semi-rural areas where the reach of banks is very limited and also those who wish to avail the extra tax benefits available only for Post Office Savings Bank Account.  Post office savings bank accounts are an effective and very viable alternative to traditional bank savings account. The post office saving bank account offer almost every feature of a Bank SB account and more over income tax benefits  

The depositors are exempted from paying income tax on interest earned on Post office Savings bank account up to Rs. 3,500.00 singly and Rs. 7,000.00 jointly for a particular financial year.  Post Office Savings Bank ( POSB) accounts are generally maintained for ease in banking and saving activity of not very high income groups.  POSB a/c is maintained along with other investments like Recurring Deposits, Fixed deposits and investments through Post Offices.   

Any individual can open a savings account with the post office. It works like a normal savings account opened in a bank with a cheque facility. The saving bank generally earns a return of 4 per cent per annum. Interest up to Rs 3,500 is exempt from tax under Section 10(15) of the IT Act. Further, a deduction of Rs 10,000 is also available for the interest under Section 80TTA of the IT Act.


Recently the interest rate on POSB accounts has been increased to 4.00% from the existing 3.5%.  You need not pay tax for an annual deposit of Rs. 87,500.00 singly and   Rs. 1, 75,000.00 jointly.   Your surplus money lying in your traditional bank savings account can be now shifted to POSB which offer an attractive interest rate apart with most of the scheduled banks.  The advantage is that whatever income you earned on POSB a/c is exempted from Income Tax as per the limit prescribed above.  In short your post tax return is 4% in whatever tax brackets you belong.    Suppose you are paying 30% tax on your income your effective tax adjusted return in case of Bank SB will be 2.8% (suppose bank pays interest @ 4.00%).   Your POSB a/c deposits are as liquid as Bank SB account,  Cheque facility available and you can open POSB in all most all Post Office in and around your location.  The only disadvantage of POSB when compared to Bank SB account is that the core banking facility is not yet implemented so presently the net banking facility is not available.   As you are aware that, now a day’s almost all banks stipulate minimum quarterly average balance in the SB accounts (range from Rs. 5,000 – 25,000), but in case of POSB you need to maintain only Rs. 50.00 as minimum balance (account with cheque facility minimum balance is Rs. 500) also these POSB accounts are immune from online frauds and your deposits and interest are 100% guaranteed by Government of India.

How to Open Account
The account can be opened at any post office with a minimum balance of Rs. 50. Maximum of Rs. one lakh for single account holder and Rs. two lakhs for joint account holders can be deposited. There is no lock-in or maturity period. The opening of post office savings bank account is very simple compared to Bank SB accounts..

Who can Open Account
Single account can be opened by an adult, a minor with minimum age of ten years, or a guardian on behalf of a minor or a person of unsound mind. Joint account can be opened by two or three adults.

Withdrawl of Money
The amount can be withdrawn anytime subject to keeping a minimum balance of Rs. 50 in simple account and Rs. 500 for cheque facility accounts.

Interest Paid
Rate of interest is decided by the Central Government from time to time, present interest rate is 4%.. Interest is calculated on monthly balances and credited annually.

Salient Features

  • One could decide to close the account anytime.
  • Nomination facility is available.


Benefit of Large Network
Post offices have the largest service network in India. Reach of post offices is of course greater than banks and this is the reason behind the government introducing something like saving accounts through post offices. They can take the benefit of having saving accounts right to the people who need them the most. If one is living in a remote corner, sometimes it is better to have a savings account in a post office rather than a bank.


Note:  Post Office Savings Bank Account interest rates and tax exemptions are subject to change

Interest up to Rs. 7,000 in Post Office Savings Exempted from Income Tax

Section 10(15)(i) of the Income -tax Act, 1961 – Exemptions – Income by way of interest, etc. , on bonds, securities – Specification of bonds, securities , etc., issued by Central Government – Amendment in  Notification No.G.S.R. 607(E), dated 9-6-1989

Interest up to Rs 3500 in Post Office Savings Exempted from Income Tax  – As per sub-clause (i) of clause (15) of Section 10 of the Income Tax Act, income by way of interest (among certain other incomes) will not form part of taxable income, if notified by the Government and subject to conditions in the notification. Government had notified vide number G.S.R. 607(E), dated the 9th June, 1989, certain securities, bonds etc, for this purpose. As per Sl. No. 9 of the table to this notification, interest from Post Office / Savings Bank Account was not to be computed as income. Now, this is amended to restrict the exemption to interest up to Rs. 3500/- for individual account and Rs. 7000 in the case of joint account.


Section 10(15)(i) Of The Income-Tax Act, 1961 – Exemptions – Income By Way Of Interest, Etc. , On Bonds, Securities – Specification Of Bonds, Securities , Etc., Issued By Central Government – Amendment In Notification No. G.S.R. 607(E), Dated 9-6-1989

Notification No. 32/2011[F.No.173/13/2011-Ita.I] /S.O.1296(E), Dated 3-6-2011

In exercise  of the powers conferred by sub-clause (i) of clause (15) of section 10 of the Income-tax Act, 1961 (43 of 1961) the Central Government hereby makes the following amendment to the notification of the Government of India in the Ministry of Finance, Department of Revenue, Central Board of Direct Taxes, published in the Gazette of India, Extraordinary, Part II, section 3, sub-section (i), vide number G.S.R. 607(E), dated the 9th June, 1989, namely :—

In the said notification, in the Table, for serial number  9 and the entries relating thereto, the following serial number and entries shall be substituted, namely :—

1                     2


“9. Post Office Savings Bank Account

To an extent of the interest of Rs. 3,500 in the case of an individual account and Rs. 7,000 in the case of joint account”


2. This notification shall come into force from the date of its publication in the Official Gazette.

Note: Interest rates, tax benefits and other terms related to Post Office SB account is subject to change.  Please contacat the nearest Post Office for more details ( 14-Sept-2013)





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