RNI No.MPBIL01854
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ith the Kisan Vikas Patra (KVP) reintroduced to investors after a hiatus, this small savings scheme has made a comeback with relatively 'easier' norms for investing. It also retains much of its older 'charm'. But should you put in your money in it? Well, maybe not. The PPF and NSC might still be better choices as they offer a better deal, especially on a post-tax basis for those in the higher tax brackets. Of course, for the unbanked and those without PAN numbers, it makes sense to channelize savings into the KVP. Those in the 10 per cent tax slab too can consider putting a small portion in it. The only major difference in the new KVP is that the investment matures in 100 months (i.e. eight years and four months) instead of the eight years and seven months in its previous avatar. The new KVP can be
purchased in denominations of Rs.1,000, Rs.,000, Rs.10,000 and Rs.50,000. You can invest as much as you wish in the instrument, as there are no limits to the amounts that you can park in it. The doubling of the investment in 100 months means that the annual interest rate is around 8.7 per cent. The amount can be pulled out after a minimum lock-in of two years and six months, in case of emergencies. There is no requirement of a PAN card to invest in the KVP. But the 'know your customer' (KYC) norms do apply. You can show any of the specified photo IDs for identification and address purposes. When normal KYC norms apply (such as while opening FDs with banks), investments of over Rs.50,000 require production of a PAN number and when more than Rs.10 lakh is parked,
the source of funds needs to be specified. It is still not clear if these norms apply in the case of investing in KVP. You can invest in cash or by cheque and will be given certificates equivalent to the amounts that you have parked. Investments can be made in the name of a minor child as well. The names in the KVP certificates are transferable and so if you want to gift or make over these to someone, you are allowed to do so. Maturity proceeds are also paid in cash or by a cheque. You can also avail of loans against KVP certificates. Investors have better small saving options compared to the KVP. For one, the instrument does not carry benefits of 80C tax deduction, which options such as NSC and PPF enjoy. Also, on a post-tax basis, KVP's effective interest rate works out to
New Delhi: India's economic growth probably slowed to around 5 percent in the three months to September, slipping from 5.7 percent in the previous quarter, two senior finance ministry sources said, putting pressure on the central bank to cut interest rates. The sources said Finance Minister Arun Jaitley would argue forcefully for Reserve Bank of India (RBI) Governor Raghuram Rajan to lower interest rates. Six months after Prime Minister Narendra Modi swept to power with a promise that "better days are coming", growth of 5 percent would be a serious slip back from the previous quarter and falls far short of the 8 percent that Asia's third-largest economy needs to create enough jobs for its growing workforce. Indian finance ministers often "jawbone" the RBI on interest rates, but Jaitley's calls have become unusually insistent of late. Aides say he will make the case for cuts forcefully when he meets Rajan."When Rajan meets the finance minister ahead of the policy review, he would be urged to cut the interest rates," one senior finance ministry
official with direct knowledge of the matter told media . "A rate cut is the only hope for industry facing poor domestic and external demand," the official said. The hawkish former IMF chief economist has made it his mission to introduce inflation targeting to India, a country long plagued by doubledigit price rises that hurt the more than 700 million people who live on $2 a day or less. So while factors such as weak international oil prices and flagging export demand have prompted Asia's top two economies, China and Japan, to take aggressive action to ease monetary policy, Rajan has held out. Policy makers in New Delhi say the RBI should follow suit, ratcheting up the pressure on a central bank that enjoys policy autonomy but lacks the kind of independence enjoyed by central banks in the West. "Rajan would have to really work hard to convince the Finance Minister why he will not cut interest rates this time," said another finance ministry official who is responsible for tax policy. After two years of sub-5 percent growth, India's $2 trillion economy is
struggling to break consistently above that level, which means tax take for the year to end March is now set to miss budget by as much as 900 billion rupees ($15 billion), the second official estimated. Jaitley has so far vowed to uphold a fiscal deficit target of 4.1 percent of GDP, but his aides caution that any further cuts in spending that the government has to make to hit it could further sap growth. "Expenditure cuts are certain, and that means a further slowdown in the e c o n o m y, " t h e o ff i c i a l s a i d . Independent economists caution, however, that cuts in interest rates may not be the best medicine for India, which is in desperate need of structural reforms to make it easier to do business. "A rate cut will have a sentiment boost impact for consumers but then that sentiment boost won't last long as the supply side is constrained," said Indranil Pan, chief economist at Kotak Mahindra Bank."The fall in inflation is not a structural correction but a cyclical correction because oil, commodity prices are not in our hands and they can turn anytime."
only 6.1 per cent for those in the 30 per cent tax slab and 6.9 per cent for those in the 20 per cent category. PPF interest on the other hand, is tax–free while only the previous year's interest on NSC is taxed. The PPF, a 15-year product, offers 8.7 per cent interest. But it is allowed for deduction under Section 80C for tax purposes and interest and maturity proceeds are fully tax free. It is thus suitable for investors in all tax brackets. The 10-year NSC offers an interest rate of 8.8 per cent, which is marginally higher than what the KVP
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offers. So, the effective interest rate on a post-tax basis works out higher than the KVP, more so if benefits of tax deduction under Section 80C are considered. Certainly, the interest rates and absence of tax benefits don't offer any compelling reasons to invest in the KVP. Of course, for those without bank accounts and without a PAN number, this may be a viable option to channelize savings. Those seeking anonymity and seeking to avoid the 'pain' of tax deductions at source (TDS) may also wish to park sums in the KVP.