Tuesday, June 7, 2011

Panel suggests 4 per cent interest on Post Office savings deposits

A government committee has suggested raising interest rates on Post Office savings bank deposits to 4 per cent, a suggestion that could benefit lakhs of small depositors.

The Committee on Small Savings also recommended linking returns on other small savings schemes with interest rates on government securities. It has also suggested that Kisan Vikas Patra (KVP) be withdrawn and the annual investment limit for the popular Public Provident Fund (PPF) be raised to Rs.1 lakh from Rs.70,000 at present.

The committee recommended that interest rates for Post Office savings deposits be raised to 4 per cent from 3.5 per cent at present, in line with the Reserve Bank's decision to hike rates on savings bank deposits.

Under the new formula, suggested by the committee headed by RBI Deputy Governor Shyamala Gopinath, small savings schemes would provide better returns to investors. Interest rate for one-year deposit scheme would go up to 6.8 per cent from 6.25 per cent, while returns for the PPF would improve to 8.2 per cent from 8 per cent.

With regard to taxing returns on the small savings schemes, the committee said the issue should be considered by the government while firming up the Direct Taxes Code, which seeks to replace the Income-tax Act, 1961. Noting that the small savings schemes are agent-driven, the committee suggested that the commission on them should be gradually reduced from 4 per cent to 1 per cent. While recommending to raise the interest rate on savings deposits by 50 basis points to 4 per cent, the panel said the Centre should introduce the system of calculation of interest rate on a daily basis on post office schemes as is being done by banks.

source : THE HINDU

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