Cheque out the mail-I

With the net asset value of mutual funds eroding by as much as 50 to 70 per cent, and lakhs of investors losing their shirt in the stock mar...

With the net asset value of mutual funds eroding by as much as 50 to 70 per cent, and lakhs of investors losing their shirt in the stock markets, investor confidence has been badly hit. It is in view of this that several investment schemes offered by the post office are interesting. An attempt to screen the various proposals:

Savings Account: In comparison with opening a savings bank account, from the point of view of net yield, the investment in a post office savings bank account is strongly recommended. Of course, an individual can have a maximum balance of Rs 1 lakh, and double that in case of a joint account8212;this was half till February 28, 2000. The biggest advantage of a post office savings account is that the interest income is entirely exempt from income tax. Besides, cheque facility is also available and cheques from the post office are now also accepted by scheduled banks. The interest rates are comparable with those payable on savings accounts in nationalised banks, but bank interest is subject to taxation after a small deduction under section 80L.

5-year Recurring Deposits: This account can be opened at the post office with just Rs 10 a month, and there8217;s no ceiling on what can be put in. An investment of Rs 10 per month fetched Rs 758.53 for deposits made between 1-3-2001 to 28-2-2002 on maturity after 5 years. After an amendment on March 1 this year, investments of Rs 10 per month will now fetch Rs 748.49 on maturity. In case a person desires withdrawal, the same is permitted up to half of the balance amount after one year. This account can also be closed prematurely after 3 years from the date of opening of the account. However, in such an event, the interest as applicable for post office savings bank accounts will be the one payable. The interest paid is tax-deductible under Section 80L within the overall limit of Rs 9,000.

Time Deposit: The minimum amount for an account is Rs 50, and there is no ceiling. Again, the rules for this were amended on March 1 this year, bringing down the interest rate. For a one year time deposit, the interest rates are now 7.25 per cent8212;that8217;s down from 7.5 per cent earlier. It8217;s 7.5 for a 2-year deposit 8 per cent earlier, 8.25 for a 3-year one 9 earlier, and 8.5 for a 5-year one 9 earlier. Interest income is tax deductible under 80L and is lucrative if you8217;re in the 10 per cent tax bracket. If you pay tax at the highest rate, it8217;s not worth your while.

Monthly Income Scheme: Minimum monthly deposit is Rs 6,000 and maximum is Rs 3 lakh for individuals and double that for a joint account. The maturity is 6 years, but can be encashed after one year at a 5 per cent discount. Interest payable on fresh accounts is now 9 per cent per annum, and in addition there8217;s a 10 per cent bonus on the principal amount on maturity. Subject to a maximum of Rs 9,000 per annum, tax deduction under 80L is allowed. More attractive that UTI8217;s monthly income scheme, especially for those in lower tax brackets where the net taxable income is say Rs 70,000 per annum8212;UTI8217;s monthly income scheme does not presently guarantee fixed rate of interest.

Besides, from financial year 2002-03, UTI MIP is on par with the income tax liability on post office MIP because income from UTI will now be taxed in the hands of the investor. Income is exempt under 80L up to Rs 9,000, but income from UTI MIP is not. If net taxable income is up to Rs 60,000 per annum, investment in the Post Office Monthly Income Scheme is better than even RBI Relief Bonds.

The author is a practicing tax consultant. Part II next week.