What Is the Post Office Monthly Income Scheme (POMIS)?
The Post Office Monthly Income Scheme (POMIS) is a government-backed savings instrument administered by India Post that provides a guaranteed monthly income on a lump sum deposit. It is one of the most widely used fixed-income schemes among retirees, homemakers, and conservative investors in India who need predictable monthly cash flow with complete capital safety. The current interest rate is 7.4% per annum, paid as simple interest every month, with a 5-year maturity period. Since the government reviews this rate quarterly, the rate at which you open a POMIS account is applicable for the full 5-year term.
POMIS accounts are available at all post offices across India — from major city head post offices to sub-post offices in rural areas — making it one of the most accessible savings instruments in the country. With over 1.5 lakh post offices across India (the largest postal network in the world), POMIS reaches investors in towns and villages where bank branches and investment platforms may not exist. The maximum deposit limit is Rs 9 lakh for a single account and Rs 15 lakh for a joint account (with up to 3 joint holders). The minimum investment is Rs 1,000 in multiples of Rs 1,000.
How POMIS Monthly Income Works
POMIS uses simple interest (not compound interest), which means the interest amount is the same every month throughout the 5-year tenure. The monthly payout formula is: Deposit Amount multiplied by Annual Rate (7.4%) divided by 12. For a deposit of Rs 5 lakh, the monthly income is Rs 3,083. For Rs 9 lakh (maximum single), it is Rs 5,550 per month (Rs 66,600 per year). For a joint account at the maximum Rs 15 lakh, the monthly income is Rs 9,250 (Rs 1.11 lakh per year). The principal is returned in full at the end of the 5-year term.
The monthly interest is auto-credited to the investor's post office savings account, which must be maintained at the same post office branch where the POMIS account is held. The post office savings account earns 4% interest on its own balance, providing a small additional return on accumulated interest that is not immediately withdrawn. Some investors strategically reinvest the monthly POMIS interest payout into a Recurring Deposit (RD) at the same post office, creating a disciplined savings habit that compounds the overall portfolio return.
Eligibility Rules and Account Limits
Any Indian resident (individual or on behalf of a minor) can open a POMIS account. NRIs and Hindu Undivided Families (HUFs) are not eligible. There is no minimum or maximum age requirement for individual accounts. A guardian can open an account for a minor, with the account converting to a regular individual account when the minor turns 18.
The deposit limit is per person, not per account. An individual can hold multiple POMIS accounts, but the total across all individually held accounts (plus the proportional share in any joint accounts) cannot exceed Rs 9 lakh. For example, if a husband opens an individual POMIS with Rs 5 lakh and is also one of two joint holders in a joint POMIS with Rs 8 lakh (his share is Rs 4 lakh), his total is Rs 9 lakh — exactly at the limit. The couple can also open a second joint account up to Rs 15 lakh with the wife as primary holder, effectively doubling family exposure to POMIS.
POMIS vs Bank FD Monthly Interest: A Detailed Comparison
Many banks offer monthly interest payout fixed deposits, presenting an alternative to POMIS for monthly income seekers. POMIS has several distinct advantages and disadvantages compared to bank FDs.
On the rate front, POMIS at 7.4% is generally higher than what banks offer for monthly payout FDs of equivalent tenure. Most major banks offer 6.25-7% for 5-year FDs with monthly payouts (though some small finance banks offer higher rates with commensurately higher credit risk). Senior citizen bank FDs may offer 7-7.5%, still below POMIS's 7.4% with sovereign backing.
The sovereign guarantee is the decisive advantage of POMIS. While bank deposits are insured under the Deposit Insurance and Credit Guarantee Corporation (DICGC) up to Rs 5 lakh per depositor per bank, POMIS is backed by the Government of India with no insurance cap. For large deposits above Rs 5 lakh, POMIS provides absolute capital safety that bank FDs cannot match.
Bank FDs offer significantly more flexibility: tenures from 7 days to 10 years, various payout frequencies, partial and full premature withdrawal (with penalty), and the ability to open online without visiting a branch. POMIS has a fixed 5-year term, requires a post office visit, and has stricter premature closure rules (no closure within 1 year; 2% penalty for closure in years 2-3; 1% penalty thereafter).
Tax Treatment of POMIS Interest
POMIS interest income is fully taxable as income from other sources at the depositor's applicable income tax slab rate. There is no Section 80C deduction available on POMIS principal deposits, which distinguishes it from SCSS (which offers 80C on principal). This absence of tax benefit means POMIS is most attractive for investors who have already exhausted their 80C limit or those in low or zero tax brackets.
No TDS is deducted on POMIS interest payouts by India Post, which simplifies tax compliance compared to bank FDs (where TDS is deducted if interest exceeds Rs 40,000 for non-senior citizens or Rs 50,000 for senior citizens). However, investors must self-declare and pay tax on POMIS interest in their annual ITR. For senior citizens with total income below the basic exemption limit (Rs 3 lakh), POMIS interest may effectively be tax-free.
Premature Closure: Rules and Penalties
POMIS has a strict 1-year lock-in period. No premature closure is permitted within the first year of opening, except in the case of death of the account holder. After the first year but before completing three years, a deduction of 2% of the deposit amount is levied as a premature closure penalty (the principal returned is reduced by 2%). After three years but before the 5-year maturity, the penalty reduces to 1% of the deposit. After maturity, the full principal plus the final month's interest is returned without any deduction.
The premature closure penalty can be a significant cost for early exit. On a Rs 9 lakh deposit, a 2% penalty means a loss of Rs 18,000 on the principal. Investors should plan POMIS investments with a clear 5-year commitment and maintain a separate liquid emergency fund (in savings accounts or liquid mutual funds) to avoid the need for premature POMIS closure.
POMIS Strategy: Maximising Monthly Income for Families
POMIS is most effective when used as part of a coordinated family income strategy. A couple can deploy funds across multiple accounts to maximise POMIS exposure while staying within the per-person limit.
For example: Husband opens individual POMIS (Rs 9 lakh) generating Rs 5,550/month. Wife opens individual POMIS (Rs 9 lakh) generating Rs 5,550/month. They open a joint POMIS (Rs 15 lakh) generating Rs 9,250/month. Total POMIS monthly income: Rs 20,350. At 7.4% on a combined Rs 33 lakh deployment, this is a guaranteed, risk-free monthly income stream of over Rs 20,000 for 5 years.
When combined with SCSS (up to Rs 30 lakh each for the couple, generating Rs 61,500/quarter each at 8.2%), the combined monthly income from SCSS + POMIS can comfortably exceed Rs 60,000-70,000 for a retired couple — entirely from government-backed, zero-risk instruments. This combined strategy forms the foundation of conservative retirement income planning in India.
POMIS for Retirees: When It Makes the Most Sense
POMIS is particularly well-suited for retirees who have received lump sum retirement benefits (gratuity, PF corpus, commuted pension) and need to convert them into a regular monthly income stream. Unlike SWP (Systematic Withdrawal Plan) from mutual funds which depletes capital, POMIS preserves the principal and pays only the interest — ensuring the corpus is intact at the end of the 5-year term for reinvestment or inheritance.
For retirees who have funded their SCSS accounts to the Rs 30 lakh maximum and still have surplus funds, POMIS provides the next-best risk-free option. The monthly payment frequency also aligns better with monthly household expenses than SCSS's quarterly payouts, making cash flow management simpler. Many retirees use POMIS interest to cover routine monthly expenses and reinvest SCSS quarterly payouts into liquid funds for flexibility.