The YV Reddy committee on small savings has recommended withdrawal of tax incentives on all small saving schemes like National Savings Certificate, Indira/ Kisan Vikas Patra and post office monthly income schemes with a six year or lower maturity. The only remaining small savings avenue with tax incentives for individuals now remains public provident fund (PPF).
The committee, which submitted its report to finance minister Yashwant Sinha today has also firmly recommended benchmarking of administered interest rates on all instruments like provident fund, employee provident fund (EPF), special deposit scheme (SDS) and government of India relief bonds to the average yield on government securities in the secondary market. The spread over the benchmark rate cannot exceed 50 basis points, it said.
For instance, the interest rate on a 5-year post office term deposit made on April 1, 2002 would be benchmarked to the average yield of a 5-year government security in the 2001-02 fiscal. If the average yield on a 10-year government paper is 9.02 per cent for this fiscal, the interest rate on a small saving scheme with a similar tenure opened on April 1, 2002 or later in the year cannot be more than 9.52 per cent or less than 8.52 per cent.
The committee, which was notified a month after Sinha announced in his budget that he would away with adhocism in fixing interest rates on small savings instruments, has also recommended that 100 per cent of the net proceeds of small savings be transferred to the states from the next fiscal. Currently, only 80 per cent of the annual small savings accrual is transferred to the states while the balance is retained with the Centre.
The recommendations would, however, be implemented only after consultations with various states and after the government formally accepts them.
