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Small Savings Schemes

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BUSINESS STANDARD

A N Shanbhag on the changes announced recently

Last year, FA02 had reduced the interest rates on post office schemes by 1 per cent. Budget-03 proposed a further 1 per cent reduction. Even before the Budget is passed by Parliament, the Ministry of Communications & IT, Department of Posts, F. S. Division has issued a Circular 113/2003-SB announcing the details.

Consequently, interest on PPF has been dropped from 9 per cent to 8 per cent tax-free. Rates on NSC-VIII, Post Office Time Deposits, Monthly Income Scheme, NSS-92 and Recurring Deposits have also been dropped from 9 per cent to 8 per cent, covered by Sec. 80L.

 

Kisan Vikas Patra, will have its doubling period increased from seven years eight months to eight years seven months. The interest is fully taxable on accrual basis. Incidentally, NSS-92 was withdrawn in November 02 but also suffers from the drop in rate from 8.5 per cent to 7.5 per cent. All these changes are effective from 1.3.03.

Now, the worst news. Last year, I had heaved a sigh of relief when I found that interest on NSS-87 was not touched and remained at 11 per cent. This was equity and justice since the investors were trapped in the scheme. Exiting attracts full tax on the capital as well as the interest. The only option is to leave it as an estate and thankfully, it was not taxable in the hands of your legatee. This circular has dropped the rate on NSS-87 from 11 per cent to 7.5 per cent.

The attached table gives a comparative analysis of the situation prior to and after the changes effected by the circular.

The author may be contacted at

anshanbhag@yahoo.com

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First Published: May 03 2003 | 12:00 AM IST

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