Income Proof is Mandatory For Rs. 10 lakhs investments in small savings schemes

Income Proof is Mandatory For Rs. 10 lakhs investments in small savings schemes

The government has recently implemented new regulations regarding post office schemes. As per the updated guidelines, individuals investing more than Rs 10 lakh in post office schemes are now required to provide documentation proving the source of funds. 

Additionally, all investments made in post office schemes are subjected to enhanced Know Your Customer (KYC) and Prevention of Money Laundering Act (PMLA) compliance rules. 

These measures have been put in place to prevent the misuse of post office schemes for activities such as terrorist financing and money laundering.

In response to the revised norms for Know Your Customer (KYC), Anti Money Laundering (AML), and Combating the Financing of Terrorism (CFT), the Department of Posts has instructed post office officials to gather income proofs from specific categories of small savings scheme investors. 

The department issued a circular on May 25, 2023, notifying its officials of this requirement. The aim of this directive is to ensure compliance with the updated regulations and prevent illicit financial activities.

According to the recently issued circular, customers are now being categorized based on the level of risk associated with their investments. High-risk customers are now obligated to provide additional documentation proving the source of funds being invested, in addition to the standard KYC norms that are typically followed. This step has been taken to enhance transparency and mitigate potential risks in financial transactions.

The circular divided customers based on the perception of risk as follows:

• Low Risk: Customers who come under the low category are those who open an account, apply for the purchase of certificates or credit of maturity/prematurity value of existing savings instruments with an amount up to Rs. 50,000. Moreover, the balances in all accounts and savings certificates should not exceed Rs. 50,000.
• Medium Risk: Customers falling under this category are those who open an account, apply for the purchase of certificates, or apply for credit of maturity/prematurity value of existing savings instruments with a sum surpassing Rs. 50,000 but up to Rs. 10 lakhs. The balances in all accounts and savings certificates should not exceed Rs. 10 lakh.
• High Risk: Customers of this category who open an account, apply for the purchase of certificates, and apply for the credit of maturity/prematurity value of existing savings instruments with an amount exceeding Rs. 10 lakhs. The balance in all accounts and certificates should not exceed Rs. 10 lakhs.

Accounts associated with Politically Exposed Persons (PEPs) residing outside India will be categorized as High-Risk. PEPs are individuals who currently hold or have held significant public positions in foreign countries. This requirement applies to individuals such as Heads of State/Governments, senior politicians, senior government or judicial officers, senior military officers, senior executives of state-owned corporations, and significant officials of political parties. 

Due to their prominent public roles, these accounts are subjected to heightened scrutiny and risk assessment to prevent potential financial irregularities.

According to the circular, the customer must furnish a copy of the document presenting the source of receipts of funds for making investments. 

Any of the below-mentioned document can be submitted as proof of the source of funds: 

• Bank/Post Office Account statement showing the source of funds.
• Any one of the ITRs filed during the previous 3 financial years, which co-relates the investment in the gross income 
• Sale deed/Gift deed/Will/Letter of Administration/succession certificate 
• Any other supporting documentation showing the income/source of fund

In addition to requesting proof of the source of funds for specific investors, all categories of customers/investors, regardless of their risk categories, are obligated to provide the following documents for investment purposes:

Photograph: Two passport-size photographs(Should not be older than 3 months), and 3 photos in the case of BO. In the case of a joint account, a photograph of all joint holders should be given 

ID proof: Aadhaar and PAN.

Address proof: Aadhaar number or PAN.

It is important to note that the documents required for compliance must be self-attested by the investor. In the case of a joint account, identification, and address proof of all joint depositors are necessary.

 For basic savings accounts, providing a document that confirms the depositor as a beneficiary of any government scheme is mandatory. These measures are put in place to ensure the authenticity and accuracy of the provided information.

The circular then explains the requirement for re-KYC depends on the level of risk associated with each customer. High-risk customers must undergo re-KYC every 2 years, medium-risk customers every 5 years, and low-risk customers every 7 years.

Before allowing the credit of maturity value into an existing savings account, it is necessary to ensure that the account holder has provided the required KYC (Know Your Customer) documents. 

The risk category for the account should be determined based on the account balance after the maturity value is credited. Only after this verification process, should the credit of maturity value be permitted.

The circular states further that when opening a new savings account to credit the maturity value, it is essential to collect the necessary KYC documents corresponding to the appropriate risk category depending on the maturity amount being credited into the account.

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