Post Office Small Savings Schemes becomes attractive

Among the small savings schemes, the Five Year Post Office Time Deposit Account and the Senior Citizens Savings Scheme have proved to be popular. The Post Office Monthly Income Account (POMIA) Scheme is also popular. Small savings schemes are safe and secure avenues for keeping the savings of citizens, especially in semi-urban and rural areas. However, it is also important that the interest rates applicable to small savings schemes should be comparable to the interest rates that are available on other savings instruments of comparable maturity.

However, small Savings experienced a whopping decline of 21 per cent during the financial year 2006-07 as commercial banks offer higher interest rates on the deposits to lure investors, according to the ASSOCHAM Eco Pulse Study (AEP). There has been a demand from different sections of the people for restoring the element of bonus on POMIA. There has also been a demand that the Five Year Post Office Time Deposit Account and the Senior Citizens Savings Scheme should enjoy the same tax treatment as is applicable to five year bank deposits.

Government on 7th December 2007 announced the following decisions:-

(i) the benefit of Section 80C of the Income Tax Act, 1961 will be extended to investments under:

(a) Five Year Post Office Time Deposit Account;

(b) Senior Citizens Savings Scheme.

The benefit of the deduction shall be available in respect of investments made under these schemes with effect from 1.4.2007 (i.e.. Financial Year 2007-08)

(ii) The bonus at the rate of 5 per cent will be payable on the deposits made under Post Office Monthly Income Account (POMIA) Scheme upon maturity of the deposit. This benefit will be available on investments made under POMIA in respect of new accounts opened under the Scheme on or after 8th December 2007. Together with bonus, the effective yield will be 8.9 per cent as against 8.3 per cent presently available under the Scheme. The return of 8.9 per cent compares very favourably with the return on bank deposits or Government securities of comparable maturity.

Small Savings Schemes Loosing out to Bank Deposits ...Read the report
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