Incentives for 5-year savings certificates may continue in new tax regime ::Business Line

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Investments in five-year National Saving Certificates (NSC) may continue to give you tax benefits even after the Direct Taxes Code (DTC) comes into effect. The Government aims to introduce the DTC system, which will replace the decades-old Income-Tax Act 1961, from April 1, 2013.

A highly placed source said, “There is feeling that tax benefits on this scheme should not be disturbed. The reason is very simple. Salaried people have great faith in this scheme and investment inflows benefit the Government.” Investments in NSCs can be made through post offices.

At present, there are two tenures for NSC investments — five years and 10 years. The former is considered a popular savings scheme, especially with salaried persons, for tax benefits and safe returns.

According to the existing arrangement, investments up to Rs 1 lakh in a financial year in the five-year scheme get tax benefits under Section 80 (C) of the Act.

The Income-Tax Act, 1961 provides tax benefit on investments in NSC, life insurance policies, equity-linked saving schemes, public provident fund, employees’ provident fund and principal and interest repayment for housing loans, among others. However, the DTC Bill, introduced in Parliament in 2010, proposes to prune this list.

The proposed tax system talks about giving tax benefits mainly on provident funds, new pension schemes and other approved funds, life insurance, health insurance, education fee for children, interest payment for housing loan and money spent on the treatment of a disabled family member. There is no mention of NSCs or five-year post office term deposits.

The Standing Committee on Finance has given its report on the Bill, but even its report does not mention NSCs or post office term deposits. Now, the status of NSCs can only be maintained by bringing an amendment in the Bill. The official amendments will first have to be approved by the Cabinet and then brought before Parliament for consideration and passage.

Parliament is expected to take up the Bill with official amendments for discussion during the Winter Session.