Post Office Monthly Income Scheme at 7.4%: Building a Steady Retirement Paycheck From Rs 15 Lakh

For a retiree who wants a fixed sum landing in the bank on a predictable date every month, the Post Office Monthly Income Scheme (POMIS) is one of the few sovereign-backed products in India that actually pays out monthly. For the July-September 2026 quarter the Department of Posts has fixed the POMIS rate at 7.4 per cent per annum, unchanged from the April-June 2026 quarter, with the next review due on 1 October 2026. That is lower than the 8.2 per cent the Senior Citizens Savings Scheme (SCSS) offers for the same quarter, but POMIS carries no age bar above 10 years and pays every month rather than every quarter, which changes the arithmetic of a retirement paycheck.

This article compares POMIS against SCSS and the other small-savings options for building a steady drawdown, works through the tax on the monthly interest, and runs a five-year corpus example on a Rs 15 lakh joint account. Every rate quoted is the official figure for the July-September 2026 quarter.

The Scheme Explained

POMIS is a five-year deposit governed by the rules framed under the Government Savings Promotion Act, 2018. You place a lump sum today, and the post office credits interest into your linked savings account on the same date every month for 60 months. At the end of the five-year term the entire principal is returned intact; the scheme does not compound the payout back into the corpus, because the whole point is that the interest leaves the account each month as income.

The rate for the July-September 2026 quarter is 7.4 per cent per annum, set by the Ministry of Finance and unchanged since the previous quarter. On a Rs 15 lakh deposit that works out to Rs 1,11,000 of interest a year, or Rs 9,250 credited every month. The rate is fixed for the full five-year term of accounts opened in this quarter, so a deposit made in September 2026 keeps paying 7.4 per cent until September 2031 even if the small-savings rate is revised on 1 October 2026 for new deposits.

The investment ceilings are the feature retirees most often misjudge. A single-holder account is capped at Rs 9 lakh, which yields Rs 66,600 a year or Rs 5,550 a month at 7.4 per cent. A joint account, which can be held by up to three adults, is capped at Rs 15 lakh, and in a joint account every holder is treated as having an equal share regardless of who funded it. The minimum to open is Rs 1,000, and the account can be opened for a minor aged 10 years or above. Your individual holdings across single and joint accounts are aggregated against the Rs 9 lakh individual limit.

Liquidity is restricted but not absent. Premature closure is not allowed in the first year. Between one and three years, closing the account attracts a 2 per cent penalty on the principal; between three and five years the penalty falls to 1 per cent. On maturity you can withdraw the full principal or re-deposit it into a fresh POMIS account at the rate prevailing on that date. For a retiree comparing income products, use the retirement drawdown calculator to model how a POMIS payout sits alongside pension and other deposits.

POMIS against SCSS and the other small-savings schemes

The right comparison for a retiree is not POMIS in isolation but POMIS against the schemes competing for the same lump sum. The table below uses the official rates for the July-September 2026 quarter.

SCSS wins on headline rate at 8.2 per cent and on ceiling at Rs 30 lakh, and its deposit qualifies for a Section 80C deduction of up to Rs 1.5 lakh in the old regime, which POMIS does not. But SCSS is barred to anyone below 60 (with limited exceptions from 55), pays quarterly rather than monthly, and its Rs 30 lakh cap is per person. POMIS is open to any adult and to minors from age 10, and its monthly credit suits a household that budgets month to month. NSC at 7.7 per cent and KVP at 7.5 per cent are accumulation products that pay nothing until maturity, so they do not solve the income problem at all. The realistic retirement portfolio pairs SCSS for the bulk of the corpus with POMIS for the monthly cash-flow layer.

Tax on Withdrawal

The most important tax fact about POMIS is that there is nothing to tax at withdrawal, because the principal you get back on maturity is your own capital returned. What is taxed is the monthly interest, and it is taxed as it is earned, not when the scheme ends.

POMIS interest is fully taxable as Income from Other Sources at your slab rate. There is no Section 80C benefit on the deposit, and unlike an equity mutual fund SWP there is no long-term capital gains treatment: LTCG on listed equity is taxed at 12.5 per cent above a Rs 1,25,000 annual exemption, but POMIS interest gets no such concessional rate and is simply added to your total income. The post office does not deduct TDS on POMIS interest, so the onus is on you to declare the Rs 1,11,000 (on a Rs 15 lakh account) in your return and pay any tax due.

Whether that interest actually costs you anything depends on your regime and total income. Under the new tax regime for FY 2025-26 the Section 87A rebate makes total income up to Rs 12 lakh tax-free, with a maximum rebate of Rs 60,000, so a retiree whose only income is Rs 1,11,000 of POMIS interest plus, say, a modest pension pays no tax at all. The new-regime slabs for FY 2025-26 are set out below.

A 4 per cent health and education cess applies on top of the computed tax in both regimes. Senior citizens who stay in the old regime have one extra lever: Section 80TTB allows a deduction of up to Rs 50,000 a year on interest income from deposits, including POMIS and SCSS interest, for individuals aged 60 and above. That deduction is not available in the new regime, so a senior with large interest income should model both regimes before choosing. Note that the 80CCD(1B) deduction for NPS is not allowed in the new regime; it is available only in the old regime, so retirees drawing from an NPS calculator plan should factor the regime choice in early.

Worked Drawdown

Consider a couple, both aged 62, who retire in September 2026 with Rs 45 lakh of safe capital to convert into monthly income. They split it as follows: Rs 15 lakh into a joint POMIS account and Rs 30 lakh into SCSS in the elder spouse's name.

The POMIS leg pays 7.4 per cent, generating Rs 1,11,000 a year, delivered as Rs 9,250 on the same day each month. The SCSS leg pays 8.2 per cent, generating Rs 2,46,000 a year, delivered as Rs 61,500 each quarter. Together the two schemes produce Rs 3,57,000 a year, an average of Rs 29,750 a month, entirely from sovereign-backed instruments.

On tax, the couple's Rs 3,57,000 of combined interest sits far below the Rs 12 lakh Section 87A threshold in the new regime for FY 2025-26, so if this is their only income the entire Rs 3,57,000 is received tax-free after the rebate. The Rs 15 lakh POMIS principal and the Rs 30 lakh SCSS principal both return intact at the end of the five-year term in September 2031.

The five-year POMIS cash flow on the Rs 15 lakh leg looks like this. Because POMIS pays out rather than compounds, the annual interest is flat at Rs 1,11,000 every year, and the principal is untouched until maturity.

Over the five years the POMIS leg alone hands the couple Rs 5,55,000 in interest and returns the full Rs 15,00,000 in September 2031, which they can then re-deposit at the rate prevailing on that date. The trade-off to understand is that a flat 7.4 per cent payout is not inflation-indexed: with RBI projecting CPI inflation of 5.0 per cent for FY 2026-27 (revised at the 5 August 2026 MPC meeting, which held the repo rate at 5.25 per cent), the real value of that Rs 9,250 monthly cheque erodes gradually over the term. A retiree who wants a rising income stream should compare this against a market-linked SWP using the annuity versus SWP calculator, accepting the extra volatility in exchange for potential inflation protection, or ladder POMIS and SCSS maturities so that a portion of the corpus is repriced at each five-year rollover. A senior citizen weighing bank alternatives can also test the senior citizen FD calculator against these post-office rates.

FAQ

What is the POMIS interest rate for the July-September 2026 quarter?

The Post Office Monthly Income Scheme pays 7.4 per cent per annum for the July-September 2026 quarter, unchanged from April-June 2026. Small-savings rates are reviewed every quarter, and the next review is due on 1 October 2026. The rate you lock in on the date of deposit stays fixed for the full five-year term.

How much monthly income does Rs 15 lakh in POMIS generate?

A Rs 15 lakh joint account at 7.4 per cent generates Rs 1,11,000 of interest a year, credited as Rs 9,250 on the same date each month for 60 months. A single account is capped at Rs 9 lakh, which pays Rs 66,600 a year or Rs 5,550 a month. The Rs 15 lakh joint ceiling can be shared by up to three adult holders.

Is POMIS interest taxable, and is TDS deducted?

Yes, POMIS interest is fully taxable as Income from Other Sources at your slab rate; the deposit earns no Section 80C benefit. The post office does not deduct TDS on POMIS interest, so you must declare it in your return yourself. Senior citizens in the old regime can claim a Section 80TTB deduction of up to Rs 50,000 a year on such interest, though this deduction is not available in the new regime.

POMIS or SCSS: which is better for a retiree?

For anyone aged 60 and above, SCSS pays a higher 8.2 per cent versus POMIS's 7.4 per cent for July-September 2026, allows a larger Rs 30 lakh deposit, and its deposit qualifies for Section 80C in the old regime. POMIS wins on monthly rather than quarterly payout and on being open to any adult. Most retirees use both: SCSS for the bulk of the corpus and POMIS for the monthly cash-flow layer.

Can I withdraw from POMIS before five years?

Premature closure is barred in the first year. If you close between one and three years you forfeit 2 per cent of the principal as a penalty; between three and five years the penalty is 1 per cent. On maturity at the end of five years the full principal is returned with no deduction, and you may re-deposit it into a fresh POMIS account at the then-current rate.

Does POMIS qualify for any tax deduction on the amount invested?

No. Unlike SCSS, NSC and PPF, a POMIS deposit does not qualify for a Section 80C deduction in either regime. Its appeal is the monthly income stream and the sovereign backing, not a tax break on the way in. Investors seeking an 80C-eligible income product should look at SCSS, whose 8.2 per cent deposit is deductible up to Rs 1.5 lakh in the old regime.

What happens to POMIS at maturity in 2031?

An account opened in September 2026 matures in September 2031, when the full principal is returned intact because the interest was paid out monthly rather than compounded. You can withdraw the principal or open a new POMIS account at the rate prevailing in September 2031. Laddering maturities across POMIS and SCSS lets you reprice part of the corpus at each rollover rather than locking the whole sum to one rate.