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No special small-saving scheme for pensioners

Subhomoy Bhattacharjee

The government has no further plans to announce any special small-savings scheme for pensioners.

Instead, Monday's decision of the finance ministry to allow retired employees to invest in the Reserve Bank of India relief bonds will give them an avenue to draw tax-free income.

According to finance ministry sources, there has been no move so far to frame any new tax relief scheme for the retired government or private sector employees to compensate for the exemptions withdrawn in the 2002-03 Budget.

The sources, however, said by allowing small investors to invest in RBI bonds without any limit, the government was effectively giving them almost an 11 per cent real effective rate of return. However, they added that the government could not guarantee any rate of interest as it would be market-determined.

On Monday, the finance ministry had clarified that the maximum investment limit of Rs 200,000 per annum per investor in relief bonds announced in the budget by finance minister Yashwant Sinha would not apply to retiring employees.

The exemption would also be applicable to investments of voluntary retirement scheme proceeds as well as reinvestment of funds obtained from the maturity of earlier tranche of relief bonds. The only rider was that the retired and retiring employees had to prove that they were investing the amount from their retirement benefits. Also, the money had to be invested within the three months of the receipt of the retirement benefits.

In the past week, Sinha had said the government would come out with the details of a new savings scheme to give tax exemption to pensioners.

In the Budget, the government had reduced the exemption limit for tax benefits under section 88 to 10 per cent for those having annual income of above Rs 150,000. The interest rate on small savings had also been reduced by 50 basis points.

Sources said the relief bonds window would remain open in future re-investments by retired people from the proceeds of the current bonds also.

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