Elderly folks can avail of a new instrument

PENSIONS: Senior Citizens Savings Scheme to replace Varishta Pension Bima Yojana

If you are a saver, there's little to be ecstatic about. But you can certainly heave a sigh of relief that things aren't any worse. Interest rates on all small savings instruments have been kept unaltered in the Budget.

There is also a new plan for senior citizens, the Senior Citizens Savings Scheme, which will replace the existing Varishta Pension Bima Yojana.

The new schemes offer 9 per cent per annum "" the same as the Varishta Bima scheme. The finance minister said all interest rates would be aligned to the market, barring one or two exceptions.

"There is also a need for an instrument that will provide a risk-free avenue for all citizens to save for a longer term and such an instrument should bear a slightly higher rate of interest. Balancing these considerations, there is no change in the existing rates of interest on small savings instruments," said the finance minister.

The Senior Citizens Savings Scheme will continue to be taxable, but the tax rebate under section 88 (B) for income up to Rs 20,000 will also remain. Also, the deduction under 80 (L) up to Rs 3,000 for government securities continues to be available.

In the case of the Varishta Pension Bima Yojana, an individual was eligible to invest an amount that could earn him a maximum of Rs 2,000 per month. So a large part of the income from the scheme was not taxable.

Also, as of now there is no clarity on whether the new scheme will have any ceiling for investments in this high-coupon scheme. Under the Varishta Pension Bima Yojana, all individuals above the age of 55 years were classified as senior citizens.

If the book definition of senior citizens is taken into account, then individuals above the age of 65 years qualify as senior citizens. Under the new scheme, the age definition is not yet clear.

Interest rates for public provident fund (PPF), general provident fund (GPF) and the Special Deposit Scheme remain unchanged and retain their tax-free status.

At present, rates on PPF and GPF stand at 8 per cent. Other small savings schemes like the National Savings Certificates (NSCs) and post office savings continue at 8 per cent. The RBI tax-free bonds continue to earn 6.5 per cent, while the taxable savings bonds earn 8 per cent.