Kisan Vikas Patra [Interest Rate, Income Tax 80C]
In case you are looking for an investment vehicle where you can pump in small amounts of money that can grow over time, Kisan Vikas Patra is one of the various options you have. Kisan Vikas Patra is also one of the most sought-after investment avenues in India because of two facts:
- It gives guaranteed returns.
- It is extremely safe.
A Small Background of Kisan Vikas Patra
The Kisan Vikas Patra (usually abbreviated as KVP) was introduced back in 1988. The organization that introduced this investment scheme was India Post. One of the primary reasons for the introduction of this scheme was that small investors from semi-urban and rural areas, who didn’t have access to grand investment schemes usually available to urbanites, were often victimized by Ponzi schemes. Those Ponzi schemes made the plight of those already poor and deprived people even further. To counter such schemes and in order to provide a safe channel for investment, India Post came out with the KVP scheme.
The scheme continued until it came under the radar of the government. A special investigation committee formed by the Union Government found that Kisan Vikas Patra is too open for exploitation and it can lead to corruption and black money. The committed that was formed in 2011 stated that the scheme is a safe haven for conversion of black money into white and is being rampantly misused by the rich people of the country. So, the government decided to pull the scheme off market. Effective December 2011, the scheme ceased to exist.
Reintroduction with Changes
The scheme saw a reintroduction when the current Union Finance Minister, Arun Jaitley announced, during Union Budget of 2016 that the scheme’s absence is hurting India as the mobilization of savings from small investors in India has completely stopped. It is true that money laundering is a massive problem with Kisan Vikas Patra and hence, the scheme will be reintroduced in market with amended rules and regulations. The new set of rules were targeted to curb the problem of money laundering using Kisan Vikas Patra and the reintroduction allowed mobilization of stale savings, thereby helping to boost Indian economy.
We will talk of the modifications made to the rules and regulations later in this article. Let us first take a look at the KVP as a whole and understand this investment scheme in great details. Please be patient as this article is going to be a lengthy narration of the tidbits of the scheme.
What Really is Kisan Vikas Patra?
It is an instrument for financial investment. The government is the guarantor of the fixed interest rate offered by the Kisan Vikas Patra. This made the investment scheme extremely safe. The only condition where KVP investors will lose money is when the government itself goes bankrupt and the whole economic system collapses. Such economic meltdowns don’t happen and the last time India was engulfed in such meltdown was back in 1929 to 1939. That event is referred to as the Great Depression and it was a worldwide phenomenon and India was only caught up in the turbulent airs. At that time, India didn’t even earn her independence from the oppressive British rule.
So, Kisan Vikas Patra is super-safe. No investor will lose his or her money. Only and only the government sells the KVP. The only place where Kisan Vikas Patra can be purchased is at any Post Office.
The Tidbits of Kisan Vikas Patra
Okay, now that we have some knowledge about what KVP really is and the reason for its introduction, withdrawal and reintroduction, let us take a quick look at the tidbits of Kisan Vikas Patra. If you are looking forward to investing in KVP, you should know about this details.
If you are looking forward to purchase KVP, you need to satisfy the eligibility conditions that have been set by the Union Government. These conditions are:
- You need to be a resident Indian.
- You should be an adult (18 years minimum).
- You cannot be an NRI.
- You cannot be from Hindu Undivided Family as HUFs are barred from purchasing KVP.
- Any Trust in Indian can also purchase KVP.
- You can purchase the KVP either for yourself or for a child who is a minor.
So, if you are an Indian adult and not HUF or NRI or if you are a Trust, you can purchase KVP as long as you are resident Indian.
How can we Purchase Procedure
In case you want to purchase KVP, you need to do so offline. There is no method available for online purchase of KVP. Here is what you need to do for purchasing KVP:
- Visit your nearest post office.
- Ask for the form that is required for KVP purchase.
- Fill in the form properly with accurate information.
- You will receive an identity slip as well. The information that you provide on the form is also to be furnished in the identity slip.
- You need to sign the form that you submit.
- You will also need witness signature, address of witness and date in case you are appointing a nominee for the KVP that you purchase.
- Information to be provided in KVP purchase form and identity slip include:
- The total amount that you want to invest in KVP.
- The payment mode for the investment amount. The investment amount can be given in cheque or cash or demand draft.
- Type of the Kisan Vikas Patra that you want to purchase. It can be either ‘single holder’ or ‘Joint A KVP’ or ‘Joint B KVP’.
- Joint owners’ names in case of Joint A KVP or Joint B KVP.
- In case you are purchasing the KVP in name of a minor, you need to provide the minor’s birth date and the name of the guardian who will have the authority to encash the account.
- In case nominee is appointed, address, birth date and name of all nominees are to be provided.
When you purchase KVP, you will receive identity slip. This slip will contain a number of information. Without this slip, you simply cannot withdraw from the account or encash the account. The information that remains on the identity slip include:
- KVP certificate’s serial number.
- Price of the issue.
- Encashment date.
- Signature of Postmaster.
- Remarks by the Postmaster. The remarks can be related to KVP transfer or issuance of duplicate KVP certificate.
Since, encashment of KVP will not be allowed with this identity slip, it is extremely important that the purchase form and the identity slip are both furnished with identical and accurate information.
Benefits You Should Be Aware Of
Investing in Kisan Vikas Patra comes with a host of benefits. Some of these benefits are totally unique to KVP and surpass the benefits provided by other investment formats in India. So, before you decide to invest, you should be aware of the benefits you can reap. Here are the benefits…
- It is a low-investment scheme and hence, every form of investor can invest, irrespective of the thickness of his or her wallet. The minimum investment allowed under KVP is INR 1,000.
- There is no maximum limit set to the amount that can be invested in Kisan Vikas Patra. This makes it ideal for rich investors.
- For investing in KVP, one needs to purchase the KVP certificates. The minimum value of a KVP certificate is set to INR 1,000. The maximum value of the KVP certificate has been set to INR 50,000.
- There is no limit set to number of certificates one can purchase and hold.
- The scheme is risk-free and extremely secure because the returns are guaranteed by the Union Government of India.
- This is a fixed interest investment scheme and the interest rate never changes.
- The Kisan Vikas Patra certificates works as collaterals. This means that if you have purchased KVP, you can always use the same as a collateral against any loan you take out.
- KVP has premature withdrawal facility. However, there is a minimum lock in period of 2.5 years.
- KVP can be easily transferred to another person. There are certain formalities that are to be fulfilled by the original owner of the certificate(s) in order to transfer the KVP to someone else. It is also worth mentioning that the post office from where the KVP was purchased, needs to approve the transfer.
- There are no tax benefits available. The interest earnings on KVP investments will be taxed by government (TDS will be applied). However, the entire maturity amount will not be taxed. There is no TDS applicable on withdrawal.
The Rules You Should Be Aware Of (Includes the New Rules Post Relaunch of 2014)
Kisan Vikas Patra comes with various rules and regulations. Here is a list of all rules and regulations that you should be aware of:
- Certificate to be issued: Once you purchase Kisan Vikas Patra, you will be provided with a certificate. The certificate is issued on the very same day when the payment is made. So, date of payment and date of certificate issue remain the same. A provisional receipt will be issued in case a certificate cannot be issued immediately. Once the certificate is available, it will be handed over in exchange of the provisional receipt. Hence, storing the receipt properly is very important.
- Purchase of KVP: Previously, KVP was available for purchase only and only through Post Offices. However, after the scheme was relaunched, some nationalized banks in India were given the permission to sell KVP only through some of their branches. All national banks authorized to sell KVP has the complete list of all branches where they make KVP available.
- Maturity proceeds: Initially, KVP scheme allowed people to withdraw the maturity proceeds in cash. However, the new rules state that cash withdrawals are no longer possible and that only way the withdrawals will be allowed will be through a direct transfer to savings accounts offered by Post Offices.
- Maturity period: Previously when KVP was introduced, the maturity period was set to 103 months or 8 years and 7 months. The new rule has reduced the maturity period to a paltry 100 months, which is nothing but 8 years and 4 months.
- KYC norms: During the purchase of the KVP, KYC norms will not be applicable.
- Mandatory requirements: Previously, any amount of investment was allowed in KVP and no one had to provide PAN or proof of income source. However, this has now been changed and anyone who tries to invest an amount exceeding INR 50,000 needs to provide Permanent Account Number of PAN. Also, anyone who tries to invest an amount exceeding INR 10 lakhs needs to provide the proof of income source. No one can invest the aforesaid amounts without the accompanying documents.
- Purchase of KVP: While purchase procedure has already been described, what we did not mention is that KVP can also be purchased through any agent authorized to sell KVP. If the certificate is purchased without agent, FORM A has to be used. In case the KVP is to be purchased through an agent, FORM A1 has to be used. FORM A has no background color while FORM A1 has a background color.
- KVP transfer: The scheme allows the transfer of KVP from owner to some other person. However, a written request has to be provided to Postmaster or bank manager, requesting the same thing. Transfer will be allowed only under the following conditions:
- It can be transferred from deceased owner to owner’s legal heirs.
- It can be transferred from single ownership to joint ownership.
- It can be transferred from owner to any law court or to anyone who has orders from law court.
- KVP certificate pledging: KVP certificate can be transferred as security. Such a transfer has to be allowed by Postmaster or bank manager only after FORM B has been used for such transfer request. Please note that if the KVP is in name of a minor, transfers will not be allowed. Such transfers can be made to:
- State Governor or Indian President.
- Cooperative Bank, Cooperative Society, Scheduled Bank, Reserve Bank of India.
- Corporation or Government Agency.
- Local Authority.
- KVP Nomination: The KVP certificate owner can nominate anyone. Upon death of owner before KVP matures, the nominee will get the ability to hold the certificate and withdraw the maturity proceeds when KVP matures.
- Interest after maturity: Once the KVP matures and the maturity amount has not been withdrawn by the owner and the amount is left in the account, the invested amount will still continue to earn interest earnings subject to certain conditions, which are:
- Only simple interest will be applicable. The interest that will be provided will be same as the interest offered by Post Office Savings Account or Bank Savings Account.
- Interest will be paid post maturity only and only if the amount has been left in the account for a minimum of 30 days. If the amount has been left in the account for less than 30 days and then withdrawn, no interest will be paid. For example, if the owner keeps the money in account post maturity for a period of 15 days, no interest will be paid. However, if the person leaves the money in account for 31 days, interest for 30 days will be paid.
- The extra interest (simple interest) that the investment amount accumulates over extra time, will be paid out in lump sum when the withdrawal is made.
- Lost or destroyed certificate replacement: It may happen that the owner loses the certificate or it is simply destroyed. Under such a scenario, a duplicate will be issued either by the Post Office or the Bank. In case the owner applies for a duplicate in a wrong location (that is, in a different Post Office or Bank), the application will be forwarded to the original place where the certificate was issued in the first place. When the application for a duplicate is made, the following information should be furnished:
- The number of the KVP certificate (can be found in identity slip).
- Date of issue of the certificate (also found in identity slip).
- Amount invested in KVP (also mentioned in identity slip).
- Circumstances which led to loss, defacement or destruction of the certificate.
- Duplicate as good as original but… The duplicate certificate issued against the lost, damaged or defaced KVP certificate will be as good as the original certificate in every aspect EXCEPT, when it comes to encashment, a proper verification process will be put in place.
- Place for encashing KVP: The certificate can be encashed from bank or the post office from where it was originally issued. However, one can also encash it from a different bank or a post office. The other bank or the post office will provide the money only after they have conducted proper verification from the certificate origin location. Verification of the owner of the certificate will also be conducted in such a case.
- Post-Maturity encashment: Once the KVP matures, it can be encashed from the post office or the bank from where the certificate was issued. The entire amount along with interest accrued will be given to the owner of the certificate on providing the identity slip. KVP will mature after a period of 100 months (8 years and 4 months). The amount that will be given to the investor / owner will be double the amount that he or she initially invested. This double amount will include the interest earnings.
- Encashing KVP prematurely: The scheme allows encashing KVP before it hits maturity. If such encashment is opted for, the interest rate is applied at simple interest. Premature withdrawal can be made only under a few conditions which are mentioned below:
- If the owner dies.
- If one of the joint owners die.
- If the law court gives an order.
- If a pledge leads to forfeiture.
- If a Gazetted officer forfeits the certificate.
- Lock in period: Despite the fact that premature encashment is allowed, it cannot be done until the KVP investment attains the age of 2.5 years. Until this period is over from the date when the certificate was issued, premature withdrawal requests will not be entertained under any circumstances.
- Discharge certificate: After the certificate has been enchased, as proof of encashment, the owner of the certificate will have to sign on the reverse side of certificate after he or she receives the payment.
- Mistake rectifications: There may be clerical mistakes or there may be arithmetical mistakes. Those can be rectified. The rectifications are allowed only and only if government doesn’t incur any losses. Rectifications can be made only and only by Postmaster General or Bank Manager.
- Relaxation power: It may happen that the owner of the KVP certificate is facing some kind of hardship. In such a case, some relaxation can be made in the aforesaid rules. However, such relaxations will be granted only after the hardships have been penned down on paper and after the central government gives an approval nod. The relaxations are completely humanitarian by nature.
Account Transfer Procedure Explained
There are two types of transfers allowed under KVP scheme. These two types are:
- Transferring from one post office to another post office OR, transferring from one bank to another bank.
- Transferring from one person (owner) to any other person.
There is a set of procedures to follow in order to accomplish such transfers and of course, there are some conditions that must be fulfilled. Let us take a look at each option individually.
Post office or bank to another post office or bank
This is possible. The owner may actually change city or residence or change the place of residence within the same city and the new residence place may fall under the jurisdiction of a different post office branch or bank branch. Under such a condition, it is very logical to have the KVP certificate transferred to the post office or bank which operates in the new area where the owner moves to reside. For this transfer to happen, the owner of the KVP certificate owner needs to provide a written consent to the post office or the bank from where he or she purchased the certificate in the first place. The bank or the post office will then do the necessary things to complete the transfer.
From owner to another person
For this, a written application has to be made to the post office or to the bank where the KVP account is located. The Postmaster or the bank manager will do the needful to complete the transfer process and give ownership of the certificate in question to the other person. However, such transfers are allowed only and only if certain conditions are fulfilled. Those conditions are:
- The owner dies and the transfer has to be made to legal heir(s) of the owner.
- If a company buys a KVP for its employee, that transfer can be made only in the name of the employee for whom the KVP was purchased.
- From single owner to joint or combined owners.
- From joint owners to single owner.
- From owner to law court.
- From owner to any other person as ordered by law court.
Loan Against the Certificate
Just like PPF or Public Provident Fund, even KVP or Kisan Vikas Patra has a provision of loan. The owner of a KVP certificate will be allowed to take out a loan against the KVP account provided some conditions are fulfilled. Those conditions are mentioned below:
- The person asking for the loan must be the owner of the certificate.
- The loan will be granted if and only if the money is used for purposes that are personal or related to business. If the purpose is speculative by nature, loan will not be granted.
- The owner should repay the entire loan amount within 100 months or 8 years and 4 months. In other words, the loan should be repaid before KVP matures.
Two important things that you should know about loan against KVP certificate:
- The amount of loan that will be granted will be at the discretion of the bank or the post office. The loan amount will depend on maturity period as well as investment amount.
- Some banks may actually charge processing fee for the loan.
- Interest rates charged by banks for providing the loan against KVP certificate may vary from one bank to another. The interest rate charged for loan may actually fluctuate over time.
Different Types Available
There are three different types of Kisan Vikas Patra. They are:
Single Owner KVP: Single Owner KVP can be purchased by a resident Indian adult either for himself or herself or for a minor.
Joint A KVP: This is a type of KVP certificate where joint ownership is allowed. Here both the owners are to be adults and the certificate will bear both of their names as co-owners. The maturity amount will be handed over to both owners or to one of the surviving owners.
Joint B KVP: This is also a co-ownership certificate and the maturity benefits will be paid to either one of the two owners jointly or to one of the surviving owners (in case one of the co-owners dies).
Interest Rates and Returns
When KVP was first introduced in market, the interest rate offered to investors was between the range 8.2% and 8.4%. After it was reintroduced during Budget 2014, the interest rate was fixed at 8.7%. Later, during Budget 2016, the interest rate was cut down to 7.8%. This new rate became effective from April 1, 2016 and still remains at the same place even after the new union budget for 2017 has already been declared.
With 7.8% applicable interest rate, the Kisan Vikas Patra actually doubles the investment amount at the end of maturity period, which is 8 years and 4 months. That’s a handsome return and really beneficial in case of large investments.
Income Tax Rules (80C)
Kisan Vikas Patra is one of the least lucrative investment options available out there in the market. The reason for this is that there are no tax benefits available.
Irrespective of the amount you invest in KVP, you cannot claim any tax deductions under Income Tax Act’s Section 80C.
Similarly, if you are holding the view that the interests that will be given to you will be tax-free, you are wrong. 10% TDS will be applicable (Tax Deducted at Source).
The only good thing is that the investment amount doubles after the maturity period. But eventually, the amount handed over is not exactly double because of TDS deductions.
Should You Invest in Kisan Vikas Patra?
This is a very serious question. The only thing we can say here is that it is a matter of discretion. The investment option is very secured and offers guaranteed returns but there are shortcomings too! The interest rates offered by the scheme aren’t very attractive and on top of that, interest earnings will be subjected to tax. There are other options like PPF, NSC etc. which offer better returns and also offer tax benefits.
However, if you have exhausted all tax benefits allowed through investments in various other avenues and you still have some spare money which you will like to see growing, KVP is definitely worth giving a try. You will at least earn some extra money (despite giving taxes) and you will not have to live in the shadow of fear that your investments may be lost. There’s government security that you can always count on.