Interest rates for tax saving enhanced – KYP discontinued, PPF investment limit raised

The government took major steps towards certain investment instruments in order to curb black money and to add relief to millions of depositors at the same time.

The annual ceiling on investment under Public Provident Fund (PPF) Scheme has been raised from Rs.70000 to Rs.100000. Hence taxpayers can invest their entire savings in PPF to claim the maximum deduction of Rs.100000 under Section 80C.

Alongside the interest rates on deposits have been hiked, in case of Public Provident Fund (PPF) to 8.6 percent from 8 percent and Post Office Savings Accounts (POSA) to 4 percent from 3.5 percent. Interest on loans obtained from PPF will be increased from existing 1%p.a to 2% p.a. This was done to make PPF and POSA more attractive to new depositors and to benefit the existing depositors.

At the same time, government had brought changes in the small savings scheme to reveal black money and to prevent money laundering such as Kisan Vikas Patra has been discontinued because it was a kind of bearer instrument leading to irregular payment of interest on unauthorized accounts. However the existing holders will be paid till their maturity period expires. The maturity period of National Savings Certificate (NSC) and post office Monthly Income Scheme (MIS) have been reduced to 5years from 6years because of the irregularities at the department’s end.  A New NSC instrument, with maturity period of 10 Years, has been introduced.

In a nutshell, it can be perceived that government is encouraging investors to make investment in long term bonds and earn higher rate of return. At the same time, since the funds of the investors will be deposited for longer period, government can invest this deposits which would fetch them effective return.

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