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A Complete Overview of Kisan Vikas Patra (KVP) Scheme

The KVP or Kisan Vikas Patra is a savings certificate scheme that was launched in the year 1988 by India post. KVP was originally designed for farmers, but now it is open for all except NRIs and Hindu united Families. The prime objective of the scheme is to encourage long-term financial discipline in people. Although the name of the scheme suggests that the scheme is solely meant for farmers, however, this is not the case, and any resident of India can invest in a KVP scheme. Since the scheme was being misused for money laundering purposes, it was discontinued in 2011. However, the scheme was re-launched in the year 2014 with modifications to curb the misuse. In this blog, you will get a clear understanding of features, benefits, and types of Kisan Vikas Patra scheme.

Development of Kisan Vikas Patra Scheme

The scheme was originally launched for farmers in the year 1988 with the aim of helping farmers to save a part of their income. It doubles a one-time investment in a period of 9 years and five months. The minimum investment in the scheme is Rs 1000 with no upper limit. Therefore, you can invest as much as you want. In order to prevent the cases of money laundering under the ambit of the Kisan Vikas Patra scheme, PAN Card proof was made compulsory for investments above Rs 50,000 by the government of India. If your deposit amount is above Rs 10 lakhs, you will have to submit income proofs which include salary slips, bank statements, ITR documents etc. The submission of the Aadhar number is mandatory to invest in the scheme.

Basic Eligibility for investing in KVP scheme

An Indian citizen who is over 18 years of age is eligible to invest in the scheme. The scheme has no upper age limit, which means senior citizens can also invest in the scheme. Moreover, the scheme also permits minors to invest and purchase a KVP certificate. However, the account has to be held by an adult. The scheme also allows two adults to opt for a joint account and purchase the certificate together. 

While opting for a joint account, the applicants are given two options –Type A and Type B. The Type A account ensures that at maturity, the funds are paid to both the account holders or the survivor of the two. In Type B, the funds upon maturity are paid to either of the account holders or the survivor of the two. It should be noted that only the people who are residing in India are eligible to buy a KVP certificate. If you are an NRI, you are not allowed to invest in KVC. Other than NRIs, Hindu- Unified Families are also not allowed to invest in the KVP scheme. Trusts can also purchase a KVP certificate. However, companies are not allowed to do the same.

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Benefits of Kisan Vikas Patra

Following are some of the benefits which you can avail from the Kisan Vikas Patra Scheme:

Risk-Free Investment: One of the biggest benefits of the scheme is that it offers guaranteed returns on investment and is well protected from market fluctuations. Moreover, the scheme is sponsored by the government, which makes it even safer to purchase a KVP certificate.

Easily accessible: KVP certificates are available at all post offices and selected public sector banks.

No-Upper Limit: There is no cap on the amount that you can invest in the scheme. Therefore, you can invest without any limitations. Moreover, there are no age restrictions to purchase a KVP certificate which means all age groups can invest in the scheme.

Collateral: Another important benefit of the scheme is that you can present the Kisan Vikas Patra (KVP) certificate as collateral against loans. Investors can use the same to obtain loans from banks.

Before-time Withdrawal: The lock-in period of your investment is two years and six months. After that, you can withdraw your amount as per your wish. However, if you withdraw within a year of purchasing the certificate, you will lose interest, and moreover, you will also have to pay the penalty.

Tax Benefits: Tax Deducted at Source (TDS) is exempted for money withdrawn from KVP after the expiry of the maturity date.

Transferable: A Kisan Vikas Patra (KVP) certificate can be transferred from one post office to another or from one person to another.

Availing a Loan Against KVP

If you are a subscriber of the Kisan Vikas Patra Scheme, you are eligible to avail a loan at lower rates just by using the KVP certificate as collateral. Every bank accepts the KVP certificates as collateral provided that the name on the KVP certificate matches the name of the applicant. You will have to follow the following conditions to avail a loan against KVP:

• The name of the applicant should match the name on the KVP certificate.
• Loans against KVP can only be availed for business and personal purposes. Banks don’t accept speculative purposes as valid reasons for offering loans.
• The amount of loan you can avail from a bank depends upon numerous factors such as the KVP investment amount and the maturity age of the KVP certificate.
• You will have to repay the loan within the frame of the KVP certificate. This means that irrespective of when you avail the loan, you will have to repay by the maturity date of the KVP certificate.

Steps to Open a Kisan Vikas Patra Account

• In order to purchase a KVP certificate, you can simply walk up to your nearest post office, or you can also visit one of the nationalized banks that offer the scheme.
• The KVP application is available online to simplify the process for the applicants.
• In case the applicant wishes to follow the online process, the first step would be to download the application form ‘Form A’ from the website of Indian Post. Next, fill your personal details and choose your mode of payment. Choose the account type and fill in the details of nominees, if any.
• After filling the application form, just walk up to the nearest post office or any bank which offers KVP certificates. You will also have to present an identity proof which could be in the form of your passport, driving license or Aadhaar card.
• Further, the post office will verify your documents and complete the KYC process. Once the verification process is completed, you can make the payment.
• Once the payment is made, you will be issued a Kisan Vikas Patra (KVP) certificate.
• The issued KVP should be kept safe as you will get your maturity funds upon producing the certificate.

Note: Presently, the interest on investments in a KVP certificate is fixed at 7.6% compounded annually. 

Take Away

Investing in the Kisan Vikas Patra (KVP) scheme is a good choice for individuals who have surplus money and may not require the money in the near future. At its launch the scheme was focused on farmers; however, now it is open for all. The scheme offers various benefits such as risk-free investment, easily accessible and most importantly the scheme offers guaranteed returns. The only limitation I can feel in the scheme is the time period of maturity. Keeping that aside the scheme is great for people those who wish to invest in a long-term savings plan.

Also, Read: Provision-wise Analysis of Key Income Tax Changes vide Finance Bill 2020