SCSS, PPF, SSY, MIS and KVP: Why premature withdrawal from post office schemes can cost more than you think | Explained
India Post offers a number of small savings schemes for various investor types and across tenures. Notably, returns on these investments are backed by the government.
The schemes on offer include the Senior Citizens Saving Scheme (SCSS), Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY), Monthly Income Scheme (MIS) and Kisan Vikas Patra (KVP), among others. Today, we discuss lock-in periods and exit rules for each, the penalties that may apply and expected loss of return.
What are the post office savings schemes on offer?
Your choice of small savings schemes differs based on individual needs and tax requirements. Notable options include PPF with 7.1% interest, SSY at 8.2%, and KVP at 7.5%, each with tax benefits, lock-in periods, and unique characteristics. Here’s a quick look:
| Post Office Scheme | Interest Rate | Lock-in Period | Investment Limit |
|---|---|---|---|
| Senior Citizens Savings Scheme (SCSS) | 8.20% | 5 years (extendable by 3 years) | Max: ₹30 lakh |
| Public Provident Fund (PPF) | 7.10% | 15 years | Min: ₹500; Max: ₹1.5 lakh/year |
| Sukanya Samriddhi Yojana (SSY) | 8.20% | 21 years | Min: ₹250; Max: ₹1.5 lakh/year |
| Monthly Income Scheme (MIS) | 7.40% | 5 years | Max: ₹9 lakh (single), ₹15 lakh (joint) |
| Kisan Vikas Patra (KVP) | 7.50% | 115 months (9 years and 7 months) | No maximum limit specified |
Senior Citizens Savings Scheme (SCSS)
The Senior Citizens Savings Scheme (SCSS) is available to residents of India who are 60 years or older on the date of opening. Further, retired individuals between 55 and 59 years of age are allowed to open an SCSS account on furnishing proof of retirement benefits and a certificate from the employer indicating superannuation and such details.
Notably, retired defence services personnel (including civilian employees) and the spouse of a central or state government employee are eligible from 50 years of age, subject to specified conditions.
Rules for premature withdrawal: SCSS has a lock-in period of 5 years, but account holders are allowed extension in block of three years, indefinitely. Here, an account holder may withdraw the deposit and close the account at any time subject to the following conditions:
- For account closed before one year, no interest shall be payable and any interest paid on the deposit, shall be recovered from deposit and the balance shall be paid to the account holder.
- For account closed after one year but before two years from the date of opening, an amount equal to 1.5% of the deposit shall be deducted and the balance shall be paid to the account holder.
- For account closed on or after two years, an amount equal to 1% of the deposit shall be deducted and the balance shall be paid to the account holder.
- In case the account is closed before expiry of one year from the date of extension, an amount equal to 1% of the deposit shall be deducted and the balance shall be paid to the account holder.
Public Provident Fund (PPF)
The Public Provident Fund (PPF) is available to individuals who are residents of India, where an account can be opened for a minor by a parent or guardian. All minor accounts must be converted once the holder reaches 18 years of age through submission of fresh KYC documentation.
You can open an account either offline or online (you must have a post office bank account for e-banking facility). Notably, each individual can only open one account with no provision for joint account under this scheme.
Premature withdrawal rules: While PPF has lock-in period of 15 years, an account holder can withdraw up to 50% of the eligible balance after five years from date of opening.
Further, after the 15-year tenure has been completed, an account holder can apply for closure or retain the account without making more deposits. The balance will continue to earn interest at applicable rate. In case of such extension, the account holder is allowed one annual withdrawal of any amount.
Extension of PPF account is also available for block period of five years, with deposits and interest at applicable rate.
Premature closure is allowed after five years from the date of opening in case of:
- Life-threatening disease of account holder / spouse / dependent children.
- Higher education of account holder or dependent children.
- Change of resident status of account holder (i.e. became NRI).
In such cases, the interest in the account shall be allowed at a rate lower by 1% of the applicable rate.
Sukanya Samriddhi Scheme / Yojana (SSS or SSY)
The Sukanya Samriddhi Yojana (SSY) is available to individuals who are residents of India, for a maximum of two girl children per family, who are below 10 years of age, at time of opening the account. Multiple accounts are only allowed in case of the birth of twins / triplets only if these are the first and second children and on furnishing of affidavit and birth certificate. The account(s) must be converted once the holder reaches 18 years of age through submission of fresh KYC documentation.
Rules for withdrawal require account holders to submit form 3, for withdrawal of up to 50% of the available balance for the purpose of education after the holder has turned 18 or passed the 10th standard, whichever is earlier.
Notably, the withdrawal may be made in one lump sum or in instalments, not exceeding one per year, for a maximum of five years, subject to the required fees and other charges as shown in the offer of admission / fee-slip issued by the educational institution.
The account has a lock-in period of five years from the date of opening. Premature closure of account is allowed immediately in case of death of the account holder, with submission of Form 2 along with the death certificate. The balance at the credit of the account and interest due thereon till the date of death shall be paid to the guardian.
Interest for the period between the date of death of the account holder and date of closure of the account shall be paid at the rate applicable on Post Office Savings Account for the balance held in the account.
Other reasons for premature closure of account include extreme compassionate grounds, as below:
- Medical support in life-threatening diseases of the account holder,
- Death of the guardian by whom account operated, or
- Continuation of the account is causing undue hardship to the account holder.
Monthly Income Scheme (MIS)
The Post Office Monthly Income Scheme (MIS) is available to individuals who are residents of India, where an account can be opened for a minor (between 10 and 17 years of age) by a parent or guardian. You can open an account either offline or online (you must have a post office bank account for the e-banking facility).
Notably, you may operate more than one account as a single or joint holder, subject to the deposit limit — ₹9 lakh (single) and ₹15 lakh (joint). All minor accounts must be converted once the holder reaches 18 years of age through submission of fresh KYC documentation.
Premature withdrawal rules: The account has a lock-in period of one year from the date of opening. The account can be closed early and deposit refunded along with interest up to the month preceding the month in which refund is made, only in case of death of the account holder.
Penalties apply for premature withdrawal as follows:
- If the account is closed on or before three years from the date of opening, an amount equal to 2% of the deposit shall be deducted from the payout.
- If the account is closed after three years, but before the full five-year tenure, an amount equal to 1% of the deposit shall be deducted from the payout.
Further, in case a matured account is not closed, the eligible balance shall continue to earn interest at the applicable interest rate till time of closure.
Kisan Vikas Patra (KVP)
The Kisan Vikas Patra (KVP) is available to individuals who are residents of India, where an account can be opened for a minor (between 10 and 17 years of age) by a parent or guardian. You can open an account either offline or online (you must have a post office bank account for the e-banking facility).
Notably, you may operate multiple accounts with no limit. All minor accounts must be converted once the holder reaches 18 years of age through the submission of fresh KYC documentation. As per the rules of the scheme, the deposit made in the account shall double on maturity.
Premature withdrawal rules: The account has a lock-in period of 115 months (which is nine years and seven months), but may be closed prematurely at any time under the following circumstances:
- Death of account holder of a single account,
- Death of any or all the account holders in a joint account,
- On forfeiture by a pledgee, being a Gazetted officer
- When ordered by court
Payout in such closures include principal amount with simple interest calculated at the rate applicable for the complete months which the account has been held.
Penalties apply for premature withdrawal if an account is closed any time after two years and six months from the date of opening, the amount, inclusive of interest shall be payable as per the provision under Para 6(3). Check table below:
| Period from the date of the account to the date of its pre-mature closure | Amount payable inclusive of interest (Rs) |
|---|---|
| Two and half years but less than three years | 1173 |
| Three years but less than three and half years | 1211 |
| Three and half years but less than four years | 1251 |
| Four years but less than four and half years | 1291 |
| Four and half years but less than five years | 1333 |
| Five years but less than five and half years | 1377 |
| Five and half years but less than six years | 1421 |
| Six years but less than six and half years | 1467 |
| Six and half years but less than seven years | 1515 |
| Seven years but less than seven and half years | 1564 |
| Seven and half years but less than eight years | 1615 |
| Eight years but less than eight and half years | 1667 |
| Eight and half years but less than nine years | 1722 |
| Nine years but before Maturity of Certificate | 1778 |
| On maturity of certificate | 2000 |
| Source: India Post (Table showing premature closure value of account opened on or after date of notification with ₹1,000 deposit) | |
Disclaimer: This story is for educational purposes only. We advise investors to check with certified experts before making any investment decisions.
