Saturday, December 8, 2007

Tax benefit a boost for those who took VRS

The main reason for the waning public interest in government sponsored small savings scheme is the low interest rates on these instruments. Particularly, five-year fixed deposit schemes of banks, which were brought under Section 80C in the current financial year, offer better returns. For example, State Bank of India is offering a return of 8.5% on five year deposits along with Section 80C benefits. The return on a five year POTD scheme, however, is only 7.5%.
The extension of tax benefits under Section 80C to the senior citizen savings scheme is relief to those above 60o or those above 55 who have opted for early retirement. Under the scheme, a senior can invest up to Rs.15 lakh for a minimum period of five years. The return given by the government on the scheme is 9%.
Under section 80C, an investment up to Rs.1 lakh in instruments like PPF, National Savings Certificate, POITD and five year bank fixed deposits are deducted from the taxable income of the depositors to calculate their tax liabilities. Equity-linked savings schemes and insurance premium are also part of this scheme. As the equity market has been booming for the last four years, equity-linked savings scheme of mutual funds and insurance have emerged as popular instruments.
In POMIA, one can invest up to Rs.4.50 lakh for six years and can use it as a monthly income scheme. The depositors will get a monthly income at the rate of 8$ per annum. At the same time, on maturity after 6 years, they will get 5% of the principal amount they deposited.
But as the scheme is not included in tax benefit schemes, neither the deposited amount nor the interest income is tax-exempt.

Bonus on Post Office M I S restored

The Union Govt. on 7th December 2007 restored bonus on the once-popular monthly income scheme of Post Office and extended tax benefit under Section 80C to five year Post Office Time Deposit and senior citizen savings schemes. It has also announced a bonus on maturity at the rate of 5% on deposits made under the post office monthly income account scheme, taking its annual return to 8.9% from the earlier 8.3%. But there will be no tax benefits on this scheme.
The bonus on MIS is restored at the reduced level of five percent against ten percent earlier. The bonus would be applicable to new accounts under the scheme from Saturday (8.12.2007).
The tax benefit on the POTD Scheme is aimed at attracting more funds under small savings, but a personal finance expert says the measure is not good enough to lure new depositors as there are better avenues available.