Everything You Need To Know About KVP
Kisan Vikas Patra (or KVP) is a small saving scheme originally introduced in 1988 by the Government of India. Later it was discontinued in 2011, again re-introduced in 2014 with some changes vide the union budget.
Among risk-averse investors, this small saving scheme is quite popular.
KVP comes in the form of certificates (similar to bank fixed deposit receipt) that can be purchased from India Post or via designated banks.
An adult resident individual can purchase KVP in his own name or on behalf of minor. Joint holding, too, is permitted. There are two types here:
Joint A Type Certificate: Issued jointly to two adults payable to both the holders jointly or to the survivor.
Joint B Type Certificate: Issued jointly to two adults payable to either of the holders jointly or to the survivor.
Moreover, the holder/s can nominate any person as a nominee in the event of death of the certificate holder/s.
Trusts can also invest in KVP.
However, Hindu Undivided Families (HUFs) and Non-Resident Indians (NRIs) are not permitted.
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An application in ‘Form A’ is necessary filling in the necessary detail and signature/s. And in case you are routing your transaction through an agent, ‘Form A1’ is needed.
The documents required are:
Age proof (Passport, Aadhaar, PAN, etc.)
Address proof (Aadhaar, Passport, electricity bill, telephone bill, ration card, etc.)
Photo identification proof (Aadhaar, voter id, PAN, Passport, driving license, etc.)
In the application form, you would be required to mention the following details:
Name the documents you would submitting as age, address and photo identification proof (which will serve as your identity slip)
The amount you wish to invest
In case you’re investing on behalf of minor, the minor’s date of birth and name of the guardian
Details of witness and his/her signature
Minimum and Maximum Investment
The minimum investment in KVP is Rs 1,000 and in multiples thereof, while there’s no limit on the maximum that one can invest.
KVP certificates come in denomination of Rs 1,000, Rs 5,000, Rs 10,000, and Rs, 50,000. However, for investments above Rs 50,000, a photocopy of the PAN card is a must. Likewise, for deposits over Rs 10 lakh, income-proof viz. salary slip, bank statement/s, Income-Tax Returns (ITRs), etc., may be required.
Investments can be done in cash/cheque/Pay Order/Demand Draft. For cash payments, the certificate/s are issued almost immediately.
How much is the maturity period for KVP?
The maturity period of KVP is 9 years and 10 months (or 118 month), and the hard-earned money you’ve invested, doubles by then (subject to changes in interest rate).
Is there a lock-in period?
Yes, investments in KVP are subject to a lock-in period of 2.5 years. Meaning, you cannot redeem before this period. Hence, when you purchase KVP, choose your denominations wisely depending on liquidity needs.
Note that premature encashment of KVP before maturity (of 118 months) is permitted only in the following circumstances:
On the death of the holder or any of the holders in case of joint holding
On forfeiture by pledge being Gazetted Government Officer
When ordered by Court of Law
What is the rate of interest on KVP?
Currently, the rate of interest on KVP is 7.3% p.a. compounded annually. But, this is hinged to 10-year G-sec yield, and therefore subject to change as per government notification.
Is the interest taxable and what happens at maturity?
Yes, interest earned on KVP is taxable as per you tax slab.
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Initially, Tax Deduction at Source (TDS) will take place at the rate of 10%. However, to withdraw after the maturity period, there is no TDS.
At maturity, you can redeem the maturity proceeds (principal + interest) by approaching your post office or bank. All you have to do is sign at the back of KVP certificate/s as a sign of encashment. Preferably, carry your identification proof/identity slip issued at the time of purchase.
Is there a tax benefit on purchase of KVP?
No, there is no tax benefit or deduction under Section 80C of the Income-Tax Act, 1961 on purchase/investment in KVP.
Are KVP certificates transferrable?
Yes, KVP certificates are transferrable from one post office to another one, anywhere in India, and from one person to another.
In case of the latter, i.e. transfer from one person to another, the following cases are permissible, but a letter in this regards needs to be submitted:
Transfer from one owner to joint holders
Transfer from joint holders to one of the holders
Transfer from name of the deceased to his legal heir
From the joint holder/s to the judge of law and also to another individual/s as order by the Court of Law
Is loan against KVP available?
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Yes, you can pledge your KVP certificate/s as collateral and obtain
against them. The loan being secured in nature, the interest on loan against KVP certificate is cheaper than a personal (unsecured) loan.
However, the loan can be availed for business and personal purpose only, and not for speculative purposes. And the loan against KVP certificates needs to be repaid during the tenure of KVP.
Here are some key benefits KVP offers:
✔ You have the flexibility to choose the denominations of your KVP certificates
✔ Offers safe and steady return on your investment. The amount to be received at maturity is mentioned on the certificate/s
✔ After 2.5 years, you can prematurely encash KVP certificate/s
✔ KVP certificate/s are easily transferrable
✔ Take a loan against KVP certificate/s, whenever you are in needs of funds
So, KVP is a good investment avenue, but depends on your investment objective, investment time horizon, risk profile, liquidity needs, and the financial goals you are addressing.
But broadly, if you are risk-averse, KVP is a promising investment avenue for you.
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