Benefits and drawbacks of investing in Kisan Vikas Patra or KVP

Kisan vikas patra or KVP is reintroduced by our honorable finance minister in budget 2014. Kisan Vikas Patra was discontinued since November 2011 by earlier UPA government. With its reintroduction, many small investors will be benefited by getting higher interest rate.

For the benefit of our readers we will be discussing benefits and drawbacks of investing in kisan vikas patra or KVP.

Benefits of investing in Kisan Vikas Patra

  • No higher ceiling limit of investment is fixed for kisan vikas patra. Any one can invest based on his or her own needs. However, a minimum amount of Rs. 100 has been fixed as the lower limit of investing in KVP.
  • Investors are offered with a higher interest rate of 8.4%.
  • Its more liquid compare to other investments like NSC or PPF, as withdrawal in case of Kisan Vikas Patra is permitted after two-and-a-half years of investment. Even it can be withdrawn before that period but interest benefits are to be compromised.
  • KVP being a bearer-line instrument can be transferred easily to anyone.
  • KYC or know your customer norms are not applicable to Kisan Vikas Patra by which investors are not required to disclose their source of income and other details.
  • Kisan Vikas Patra can be purchased in denomination of Rs. 100, Rs. 500, Rs. 1000, Rs. 5000, Rs. 10000 and Rs. 50,000 from any post office in India.
  • Kisan Vikas Patra can be used as collateral security for loan from banks.

investing in kisan vikas patra

Drawbacks or disadvantages of investing in kisan vikas patra

  • Kisan Vikas Patra or KVP is not part of the instruments listed under section 80C of income tax act for tax deductions, which meant investing in Kisan Vikas Patra will not give you tax benefits under section 80C.
  • Kisan Vikas Patra or KVP is a bearer instrument by which anyone having the instrument can claim the money that is kept in post office.
  • Interest from KVP is taxable under the head income from other sources. Investor need to calculate accrued interest every year for tax calculation.
  • Interest payment on Kisan Vikas Patra will be liable to TDS by which post office has to deduct Tax at source if interest income is above Rs.10000 per year.
  • At the time of withdrawal, proceeds will be transferred to the concern person’s postal saving account. Cash payments are not allowed at the time of withdrawal.

Kisan Vikas Patra serves as a better income option for small investors because of secured interest income and liquidity. Even though you do not get any tax benefits for your investments, we suggest you to invest in Kisan Vikas Patra for higher return in addition to other investment schemes like PPF, NSC etc.

Editorial Staff at Yourfinancebook is a team of finance professionals. The team has more than a decade experience in taxation and personal finance.