Having spare money is not, on its own, a good reason to put it into Kisan Vikas Patra (KVP). Ask most financial advisers whether you should invest in Kisan Vikas Patra (KVP), and if you pay income tax, the answer will usually be no.
Why not? There are four reasons:
- Low rate of return after tax
- No income tax deduction
- Long wait for the full return
- The interest is taxable
Low rate of return after tax: for the October to December 2026 quarter, Kisan Vikas Patra pays 7.5%. That's a little below the National Savings Certificate (7.7%) and a little above the Public Provident Fund (7.1%). But PPF interest is tax-free and KVP interest isn't. If your income falls in the 10% tax slab or higher, PPF's 7.1% leaves you with more than KVP's 7.5%.
No income tax deduction: it surprises many people that Kisan Vikas Patra (KVP) gives no tax benefit. Several other government savings schemes give a deduction of up to 1.5 lakh under Section 80C (section 123 of the new Income-tax Act, 2025) if you use the old tax regime. KVP isn't one of them.
Long wait for the full return: at today's rate, your money doubles only after 9 years and 7 months (115 months). You can encash the certificate after 2.5 years, but you then get a lower return than the full rate. That's a long time to have your money tied up.
The interest is taxable: say Mr. X invests in this scheme. He accepts the rate because it's a government scheme. He gets no tax deduction either, but he lives with that and leaves the money in until maturity, 9 years and 7 months later. Now he's waiting to enjoy the return. Then comes the catch: the interest he has earned is taxable. If Mr. X invested 1 lakh rupees, he earns another 1 lakh, and he has to pay tax on it.
So if you pay income tax, putting your money into Kisan Vikas Patra (KVP) usually isn't the best choice. Better options include the Public Provident Fund and the National Savings Certificate.