The authorities lately rolled backed the the steep rate of interest reduce on small saving schemes comparable to PPF (Public Provident Fund) and NSC, saying it was an oversight. Economists at India’s greatest financial institution SBI have welcomed the transfer. “We believe the government has taken the best decision of not changing the rates on small saving schemes as we are currently going through an unprecedented pandemic crisis.”
In a report, SBI economists have additionally urged three measures for small financial savings schemes. “We believe a 3 fold strategy may be undertaken which could be beneficial for all,” the report stated.
Here are the options:
1) The economists have urged revenue tax rebate on curiosity on Senior Citizen Savings Scheme. “The interest on Senior Citizen Saving Scheme is fully taxable. The Feb’20 outstanding under Senior Citizen Saving Scheme was ₹73,725 crore. If the amount is given full tax rebate/ up to a threshold level it will have nominal impact on the exchequer.” Under Senior Citizens Savings Scheme, a senior citizen can deposit ₹15 lakh and the present rate of interest is 7.4%.
2) The report additionally urged that “serious thought could be given of whether interest rates offered on deposits in India are linked to an age-wise interest rate structure.”
“Interest rates offered on deposits in India are also demography agnostic (barring the separate rate for senior citizens). However, going forward, in our view, this approach should shift to an age-wise interest rate structure, with rates linked to long-term bank deposit rates till a certain age group, and offering a higher than market rate over that age group. This could, in one go, serve the multiple purposes of (a) ensuring a lower lending rate structure, (b) adequate returns for senior citizens, (c) lower interest expenditure and (d) an alternative to floating rate deposits,” it stated.
3) Third, “PPF is a government-backed, zero-default risk, long-term small savings scheme akin to quasi floating rate deposits with the objective to provide retirement security to self-employed individuals and workers in the unorganised sectors. As small saving scheme rates are adjusted in every quarter, Government should ideally remove the 15 year lock-in period for PPF and give the investors the option to withdraw their money within a stipulated time with some sort of disincentive of course!”
“PPF is a government-backed, zero-default risk, long-term small savings scheme akin to quasi-floating rate deposits with the objective to provide retirement security to self-employed individuals and workers in the unorganised sectors. “We anticipate the federal government to take care of a parity in rates of interest between organised sector/EPF and unorganised/PPF for the bigger purpose of social safety. As SSS charges are adjusted in each quarter, authorities ought to ideally take away the 15 yr lock-in interval for PPF and provides the traders the choice to withdraw their cash inside a stipulated time,” the report stated.
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