Sunday, 8 May 2016

Kisan Vikas Patra (KVP)

Kisan Vikas Patra(KVP) is a small saving scheme which was initially launched in 1988. It was later discontinued in 2011 after the recommendation of a committee that KVP can be misused for money laundering. It was introduced again in 2014 with some changes to make it safer like -

  • KYC norms are a must now like any other small saving scheme. So identity proof and residence proof are required now.
  • PAN is also required if invested amount is more than Rs. 50,000.

Denominations of certificate

The Kisan Vikas Patra is available in denominations of Rs. 1,000/-, Rs. 5,000/-, Rs.10,000/- and Rs. 50,000/-.

Any number of Certificates may be purchased which means there is no upper ceiling.

Who is eligible for investing in KVP

A KVP certificate can be issued to an adult for himself or on behalf of a minor or to a minor. It can also be issued jointly to two adults.

KVP is not available to companies. Hindu Undivided Family (HUF) and NRI also can't invest in KVP.

Procedure for purchase of Certificate

In order to purchase KVP certificate a duly filled Form A should be presented at a Post Office or Bank.

Modes of payment - Payment for the purchase of a Certificate may be made in any of the following modes, namely:-

  • By cash
  • By locally executed cheque, pay order or demand draft drawn in favour of the Post Master
  • By presenting a duly signed withdrawal form or cheque together with the passbook for withdrawal from Savings Account standing in credit of the purchaser at the same Post Office or Bank.

If payment is not done using cheque, pay order or DD a Certificate shall be issued immediately and the date of such Certificate shall be the date of payment.

Where payment for the purchase of a Certificate is made by cheque, pay order or demand draft the Certificate shall not be issued before the proceeds of the cheque, pay order or demand draft, as the case may be, are realised and the date of such Certificate shall be date of encashment of the cheque, pay order or demand draft, as the case may be.

Type of Certificates

Kisan Vikas Patra (KVP) are of the following types -

  • Single holder type Certificates - This type of certificate may be issued to an adult for himself or on behalf of a minor or to a minor.
  • Joint 'A' type Certificates - This type of certificate may be issued jointly to two adults payable to both holders jointly or to the survivor.
  • Joint 'B' type Certificates - This type of certificate may be issued jointly to two adults payable to either of the holders or to the survivor.

Rate of interest on KVP

From FY 2016-17 rate of interest on KVP is 7.8%. Which means amount Invested doubles in 110 months (9 years & 2 months).

Note that previous rate of interest was 8.7% (People who bought KVP till last fiscal year will get the same rate of interest i.e. 8.7%). With that rate of interest amount invested doubled in 100 months (8 Years & 4 months).

Tax treatment of KVP

There is no tax benefit for investing in KVP. Amount invested in KVP is not eligible for deduction under section 80C. Also the accrued interest is taxable.

There is no official intimation that TDS will be deducted on the interest accrued so it would be safe to assume that TDS is not there.

Kisan Vikas Patra maturity

KVP matures when the amount invested is doubled, so based on the current interest rate (FY 16-17) of 7.8% maturity time is 110 months (9 Years and 2 Months).

Pre-mature encashment of KVP

One advantage of KVP is that KVP certificate can be encashed any time after expiry of two years and six months from the date of issue of Certificate. Based on a pre-determined calculation you will get your prinicipal + interest value for the invested time period.

KVP may also be prematurely encashed any time under the following circumstances, namely :-

  • On the death of the holder or any of the holders in the case of a joint holder;
  • On forfeiture by a pledge being a Gazetted Government officer
  • When ordered by a court of law

Transfer of Certificate from one person to another

KVP certificate may be transferred from one person to another with the consent in writing to an officer of the Post Office or Bank.

Cases in which transfer can be sanctioned are -

(a)

  • From the name of a deceased holder to his heir.
  • From a holder to a court of law or to any other person under the orders of court of law.
  • From a single holder to the names of joint holders of whom the transferee shall be one.
  • From Joint holders to the name of one of the joint holders.

(b)

  • From Single or joint holders to another person.

Transfer from Post Office to Bank and vice-versa

A Certificate may be transferred from a Post Office or Bank at which it stands registered, to any other Post Office or Bank to the holder or holders making an application in Form B either at Post Office or Bank.

Nomination

Nomination facility is provided for the Kisan Vikas Patra. For that Form C has to be filled. In case, nomination is not made at the time of purchasing the Certificate, it may be made at any time after the purchase of the Certificate but before its maturity.

Pledging KVP certificate as security

Another adavntage of KVP is that this certificate can be used as a collateral against a loan from the bank or in other cases where security deposit is needed.

To sum it up let's see some of the pros and cons of the KVP -

Pros of KVP

  1. Risk free as the returns are fixed and secure.
  2. It provides some liquidity as it can be encasehd after 2&1/2 years.
  3. It can be pledged as a collateral.
  4. TDS is not deducted on the interest earned. However, it is the responsibility of the certificate holder to show the interest income and pay the taxes accordingly.

Cons of KVP

  1. Though KVP was a favourite small saving scheme at one time but now it is not a good investment, when interest rate is drastically reduced to 7.8% (FY 2016-17). For long term investment PPF or SSY is a much better option.
  2. For shorter term (if fixed return is needed) 5 year Bank FD is a some what better option, though interest rate offered currently will be less than what is offered for KVP, at least it is eligible for tax deduction. You can break it too, of course some penalty will be levied.
  3. There is no tax benefit either so for people who are falling under income tax slabs there are other better avenues to invest than KVP.

That's all for this topic Kisan Vikas Patra. If you have any doubt or any suggestions to make please drop a comment. Thanks!


Related Topics

  1. Post Office Monthly Income Scheme
  2. Public Provident Fund (PPF) - An introduction
  3. Sukanya Samriddhi Yojana (SSY) - An introduction
  4. Bank fixed deposits in India

You may also like -

>>>Go to Fixed Income Options page

2 comments:

  1. If KVP or NSC is not a good return instrument, May I know which risk free instruments are there in the market for investment. I already have PPF, SSA, EPF & FDs.

    ReplyDelete
    Replies
    1. You may look into FMPs. Now duration has been increased to 3 years from 1 year to get the long term indexation tax advantage but looks like you are not averse to the idea of putting for 3 years if you already are putting money in PPF (15 yrs), SSA (21 years).
      If you are not putting some amount in Equities do that too. Do take some risk too but not without using your brain!!

      Delete