September 11, 2014 1:30:34 am
The finance ministry is set to rejig small saving schemes as it tries to channelise household investments into the formal sector. Towards this end, the popular small savings product of the 1980s and 1990s — the Kisan Vikas Patra — is set to stage a comeback while inflation-indexed bonds for retail investors may be merged with the proposed National Savings Certificate.
The finance ministry plans to launch the revamped version of the small savings scheme next month. “All approvals are in place for the Kisan Vikas Patras. It should be re-introduced sometime in October and will be roughly on the lines of the earlier scheme,” said a senior government official.
The revamped KVP is expected to have relaxed know-your-customer (KYC) norms but will continue with its earlier tax treatment wherein there was no deduction allowed under Section 80 C of the Income Tax Act.
Interest income on the KVP will also be taxable. The revised KVP will continue to be available at post offices to subscribers.
“The objective is to wean away household savings from investments like gold. KVP was very popular amongst small savers as it guaranteed to double investment over a period of time despite no tax benefits,” pointed out the official.
The scheme was however, discontinued from November 2011 based on recommendations of the Shyamala Gopinath panel on small savings over apprehensions that it was used for money laundering since it was a bearer instrument.
The finance ministry is also considering a plan to merge the benefits of the inflation-indexed bonds for retail investors with another small savings product.
“The main objective of the inflation-indexed bond is to provide protection from inflation. But the bonds were not successful last fiscal due to a variety of factors,” said a second official.
As a result while the inflation-indexed bonds for institutional investors would continue, the bonds for retail sector could be merged with the proposed National Savings Certificates that could include inflation indexation.
“We have to talk to the department of posts as well as the Reserve Bank of India on the issue before a decision can be taken,” said the second official.
The finance ministry reasons that too many small savings products could also confuse retail investors but continuing the inflation-indexed bonds in the institutional sector would provide some variety to the market.
Finance minister Arun Jaitley had announced plans for launching revamped KVP and NSC in the Budget this year “to encourage people, who may have banked and unbanked savings to invest” in these instruments.
According to the Budget announcement, the NSC would include insurance cover to provide additional benefits for the small saver.
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