Kisan Vikas Patra (KVP) which was discontinued in Dec 2011 has been again reintroduced in the Budget 2014 which was presented by Arun Jaitley. This instrument was earlier discontinued due to fears of Money Laundering as it was a Bearer Instrument and both the amount invested and the amount received on maturity could be received in cash.
However, discontinuation of Kisan Vikas Patra (KVP) was hurting the savings mobilisation of small investors and therefore these have been re-introduced from 2014 with certain modifications like:-
- Maturity Proceeds won’t be paid in Cash but would be transferred to the Post Office Savings Account.
- No KYC Norms would be applicable at the time of purchase of KVP
- TDS @ 10% would also be deducted on the Interest earned on KVP
- Reduction of the Maturity Period from 8 years & 7 months to 8 years & 4 Months.
- KVP would initially be issued through Post Offices only but would later also be available in specified branches of nationalised banks.
What is Kisan Vikas Patra (KVP)?
Kisan Vikas Patra is an instrument on which fixed interest is paid by the Govt. This instrument is sold by the Govt and can be purchased through any Post Office. Kisan Vikas Patra can be purchased by making payment either in cash/ cheque/ pay order/ demand draft.
The Kisan Vikas Patra is of the following types:-
- Single Holder Type Certificate: Issued to an Adult for himself or on behalf of a minor or to a minor.
- Joint A type Certificate: Issued jointly to 2 adults payable to both the holders jointly or to the survivor.
- Joint B type Certificate: Issued jointly to 2 adults payable to either of the holders jointly or to the Survivor.
A person interested in purchasing this instrument is required to submit an application in Form A or Form A1 either in person or through an agent of the small savings scheme.
Form A (No Background Colour Form) is to be used in case of direct investment and Form A1 (Coloured background Form) is to be used in case the investment is made through an Agent.
If the payment is made through Cash – the Instrument is issued immediately. However, if the payment is made through Cheque/ Pay Order/ Demand Draft – the Instrument is issued on the date on which the payment gets cleared.
At the time of issue of the Certificate, the buyer should also request for Identity Slip which would be required in case of loss of the certificate and also required for easy processing of the payment at the time of maturity.
Maturity Period and Interest Rate on Kisan Vikas Patra (KVP)
The maturity period of the Kisan Vikas Patra is 9 years and 2 months and on maturity – the amount invested gets doubled. So if you invest Rs. 1,000 in this instrument – on maturity i.e. after 8 years and 4 months – the amount invested by you will get doubled to Rs. 2,000. And therefore the effective Interest Rate on Kisan Vikas Patra is 7.8%. (Effective from 1st April 2016)
Kisan Vikas Patra may be prematurely encashed any time before its maturity in any of the following circumstances:-
- On the death of the Holder or any of the Holders in case of Joint Holders
- On forfeiture by a pledge being Gazetted Govt Officer
- When ordered by a court of Law
Maximum Amount of Investment in KVP
The Kisan Vikas Patra is sold in denominations of Rs. 1000, Rs 5000, Rs. 10000 & Rs. 50000. There is no maximum limit stated on the amount of investment that can be made in Kisan Vikas Patra and a person is free to invest any amount by purchasing this instrument in multiple denominations.
Amount paid on Premature Encashment of KVP
In case of premature encashment of the KVP, the amount is paid depending on the period of holding of the KVP. The following table shows the amount that would be paid in case of premature encashment of a certificate of Rs. 1,000
|Period of Holding the Certificate||Amt Payable (inclusive of Interest)|
|Less than 1 year||1000 (No Interest wld be paid)|
|Min: 2.5 years, Max: 3 years||1201|
|Min: 3 years, Max: 3.5 years||1246|
|Min: 3.5 years, Max 4 years||1293|
|Min: 4 years, Max 4.5 years||1341|
|Min 4.5 years, Max 5 years||1391|
|Min: 5 years, Max 5.5 years||1443|
|Min: 5.5 years, Max 6 years||1497|
|Min: 6 years, Max 6.5 years||1553|
|Min: 6.5 years, Max 7 years||1611|
|Min: 7 years, Max 7.5 years||1671|
|Min: 7.5 years, Max 8 years||1733|
|Min: 8 years, Max 8 years and 7 months||1798|
Procedure for Redemption of the Kisan Vikas Patra
A person holding the Kisan Vikas Patra can redeem the same from any post office across India. However, if this instrument is redeemed at any post office other than the post office from which it was purchased, you would be required to show them the Identity Slip (which is issued at the time of Purchase). In case the Identity Slip is not available, this instrument would be redeemed on verification from the Post Office from which it was purchased that the person redeeming the same is entitled to do so.
Interest paid after Maturity
The Maturity Period of the Kisan Vikas Patra is 9 years and 2 months. If the amount has not been received on maturity of the KVP, Interest would be paid on the amount due. The interest paid would be equal to the Interest paid on Savings Account.
Tax on Kisan Vikas Patra
- The amount invested in the Kisan Vikas Patra cannot be claimed as a deduction under Section 80C
- The Interest on Kisan Vikas Patra is not exempted from the levy of Income Tax and Tax would be levied as per the Slab Rates. TDS @ 10% would also be deducted from Interest.
There are no tax benefits of investing in the KVP which makes it a less lucrative investment and therefore it is not advisable to be investing in the KVP.
- Recommended Read: 4 Reasons why you should not invest in Kisan Vikas Patra
Apart from KVP, there are several other Fixed Income earning instruments as well which are backed by the Govt and can be purchased from the Post Office. The most popular of these instruments which can be purchased from the Post Office itself are the PPF Account and the National Savings Certificate.