Post Office Monthly Income Scheme: what it pays and who it suits
A sovereign-backed monthly payout with a five-year term and a hard investment cap. The limits, the tax treatment, and the trick of pairing it with an RD.
Most safe instruments in India pay you at maturity. POMIS pays you every month, which makes it one of the few things a person can build an income floor on without touching capital or taking market risk.
It is unglamorous and heavily capped, and for the specific job it does there is not much competition.
The mechanics
Term. Five years, with a five-year extension available on maturity at the rate prevailing then.
Rate. Set quarterly by the Ministry of Finance, currently 7.4% per annum. The rate is fixed for the full five years at the rate applying when you open the account, so a subsequent cut does not affect an existing deposit — and neither does a subsequent rise.
Payout. Interest is credited monthly, starting one month after opening, into a linked post office savings account. It is simple interest, not compounded — the whole point is that it leaves.
Limits. ₹9 lakh in a single account, ₹15 lakh in a joint account. These are per-person ceilings across all POMIS accounts, so opening several does not raise them. In a joint account each holder's share counts against their individual limit.
Safety. Administered by the Department of Posts, backed by the Government of India. There is no bank to fail and no ₹5 lakh insurance cap to worry about, because the sovereign is the counterparty.
Eligibility. Any resident individual, including a minor over ten in their own name. Not available to NRIs; an account has to be closed if the holder becomes non-resident.
What it actually pays
At 7.4%, on the maximum permitted:
| Deposit | Monthly income | Annual |
|---|---|---|
| ₹4,50,000 | ₹2,775 | ₹33,300 |
| ₹9,00,000 (single) | ₹5,550 | ₹66,600 |
| ₹15,00,000 (joint) | ₹9,250 | ₹1,11,000 |
A couple can hold ₹9 lakh each individually plus a joint account, subject to each person's ₹9 lakh personal ceiling being respected across all accounts. Structured carefully, a household can get to ₹18 lakh and roughly ₹11,100 a month.
That is the honest scale of it. POMIS is a floor, not a retirement plan.
Premature closure
Money is locked for a year. After that:
- Between one and three years: 2% of the principal is deducted.
- Between three and five years: 1% is deducted.
The deduction is on principal, not on interest earned, which is unusually clean — you keep every rupee of interest already paid. Compare that with a bank FD, where breaking early causes the whole interest calculation to be redone at a lower rate for the period actually served, often clawing back more than a POMIS penalty would.
The tax position
Interest is fully taxable at your slab rate, added to income under "income from other sources". There is no TDS on POMIS, which people frequently misread as meaning there is no tax. There is; you simply have to declare and pay it yourself, and the absence of a TDS certificate makes it easy to forget.
Section 80TTB gives senior citizens a deduction of up to ₹50,000 on interest income, and POMIS interest qualifies. For a retired taxpayer with modest total income this can make the entire payout effectively tax-free.
For a 30%-bracket taxpayer, 7.4% becomes about 5.2% after tax. Against 6% inflation that is a real loss of purchasing power. This is not a criticism of the product — it is the reason POMIS suits retirees in low brackets who need certainty, and suits high earners in the accumulation phase very poorly.
The RD pairing
The standard trick, and it is a good one: route the monthly POMIS payout straight into a post office recurring deposit.
If you do not need the income immediately, ₹5,550 a month into a five-year RD at around 6.7% turns a simple-interest product into a compounding one. At the end of five years you have your ₹9 lakh principal back plus an RD maturity of roughly ₹3.9 lakh, against ₹3.33 lakh of interest simply taken as cash.
Both accounts can sit at the same post office and the transfer can be automated. It is a way of holding a sovereign-guaranteed instrument without accepting the drag of simple interest.
How it compares
Against a bank FD. POMIS usually pays a little more than a comparable five-year bank FD, and carries sovereign rather than bank risk with no ₹5 lakh insurance ceiling. The FD is more flexible on tenure and much easier to operate online.
Against SCSS. If you are over sixty, SCSS is better on almost every axis — a higher rate, a ₹30 lakh limit, quarterly payouts, and an 80C deduction on the deposit. Fill SCSS first and use POMIS for whatever exceeds its cap.
Against a debt fund with an SWP. The debt fund is more tax-efficient for a high-bracket taxpayer and fully liquid, but the income is not guaranteed and the capital can fall. Different instrument for a different risk appetite.
Against an annuity. POMIS returns your capital at the end. An annuity does not, in most variants. For a five-year horizon POMIS is simply better; annuities answer the longevity question, which POMIS does not attempt.
Who it is genuinely for
A retiree without SCSS eligibility, or one who has already filled SCSS, who wants a predictable monthly credit with no market risk and no counterparty to worry about. Also a household wanting to convert part of a lump sum — a retirement payout, a property sale — into a stable base income while deciding what to do with the rest.
Who it is not for: anyone in the 30% bracket in the accumulation phase, anyone needing more than about ₹11,000 a month from it, and anyone who might need the capital back inside a year.
Where these figures come from
- National Savings Institute, Ministry of Finance — Small savings rates — PPF, SSY, NSC, post office schemes
Published by FinClamp. This guide is information, not financial advice — see the disclaimer.