Govt committee suggests Increase in PPF limit, Saving Interest rate, Withdrawal of KVP

A government committee has suggested raising interest rates on Post Office savings bank deposits to four per cent, a suggestion that could benefit lakhs of small depositors.  The Committee on Small Savings also recommended linking returns on other small savings schemes with interest rates on government securities.  It has also suggested that Kisan Vikas Patra (KVP) be withdrawn and annual investment limit for the popular Public Fund (PPF) be raised to Rs 1 lakh from Rs 70,000 at present. Provident

The committee recommended that interest rates for Post Office savings deposits be raised to four per cent from 3.5 per cent at present, in line with the Reserve Bank’s decision to hike rates on savings bank deposits.

Under the new formula, suggested by the committee headed by RBI Deputy Governor Shyamala Gopinath, small savings schemes would provide better returns to investors.

Interest rate for one-year deposit scheme would go up to 6.8 per cent from 6.25 per cent, while returns for the PPF would improve to 8.2 per cent from 8 per cent.

With regard to taxing returns on the small savings schemes, the committee said the issue should be considered by the government while firming up the Direct Taxes Code ( DTC )), which seeks to replace the Income Tax Act, 1961.

Noting that the small savings schemes are agent-driven, the committee suggested that the commission on them should be gradually reduced from four per cent to one per cent.