Tax ramifications of 7.4% interest earned on a monthly income plan from the post office

NEW DELHI: India Post guarantees consistent monthly interest payments via a variety of investment options, such as the Post Office Monthly Income Scheme (POMIS). POMIS had a remarkable rise in revenues, from Rs 5,000 crore in FY23 to roughly Rs 20,000 crore by early February, driven by quarterly interest rate modifications.

According to the India Post website, the Post Office Monthly Income Scheme has the following key components:.
With POMIS, who can invest?
(i) Adult individuals;

(ii) joint accounts (designated as Joint A or Joint B and including up to three adults)
(iii) guardians for children or mentally ill persons
(iv) Minors who have accounts in their own names and are at least ten years old

What is the maximum balance that may be kept in an account, and what is the minimum amount required to start one?
Multiples of Rs 1,000 are needed as the minimum opening deposit for a Post Office Monthly Income Scheme (MIS) account.
For a single account, the maximum investment limit is Rs 9 lakh, and for a joint account, it is Rs 15 lakh.
A person’s entire investment in MIS, including their portion in joint accounts, cannot exceed Rs 9 lakh.
The portion of each joint holder in a joint account is the same.
A person’s total opening balance for all MIS accounts should not be more than Rs 9 lakh in deposits or shares.
Guardians’ accounts registered on behalf of children have a different cap.
What is the POMIS’s periodicity and interest rate payable?
A monthly interest rate of 7.4% will be charged on POMIS from January to March 2024.
From the time an account is opened until it matures, interest is paid at the conclusion of each month.
Monthly interest that is not claimed does not earn interest over time.
Only interest from Post Office Savings Accounts is applied from the date of account establishment until the reimbursement date for excess deposits.
Interest may be sent automatically by ECS or at the same post office to the savings account. Monthly interest may be applied to savings accounts at any CBS Post Office for MIS accounts.
Is there a tax on the interest rate earned?
The depositor is liable for taxes on interest earned.
What are POMIS’s tax advantages?
In contrast to a number of other post office systems, POMIS is exempt from Section 80C of the Income-tax Act of 1961.
Post Office Monthly Income Scheme Tenure
Five years after the account’s inception, it may be terminated by bringing the necessary application form and passbook to the relevant post office. The account may be cancelled and the money reimbursed to the nominee or legal heirs if the account holder dies before it matures. Interest will be reimbursed up to the month before the refund is handled.
Can an early closure of a POMIS account occur?
During the first year after account establishment, withdrawals are not permitted.
The remaining money will be paid out if the account is closed after a year but before three years from the starting date, with 2% of the principle being deducted.
A 1% principal reduction will be made if the account is closed after three years but before five years from the inception date; the remaining balance will be disbursed.
The passbook and the required application form must be sent to the appropriate post office in order to start the process of prematurely closing the account.