Tax relief for holders of govt savings tools from this fiscal

Doulot Akter Mala | Published: August 08, 2015 00:00:00 | Updated: November 30, 2024 06:01:00

Investors will enjoy tax relief on the profit earned from the Sanchayapatras (government savings tools) from the current financial year (2015-16) following incorporation of a provision into the income tax law accepting the tax paid at source on such income as the final settlement. Â
Taxpayers will be paying tax at a rate of 5.0 per cent at source on their profits to be gained from savings certificates in the 2015-16 income year.
Until 2014-15 fiscal, taxpayers were required to add the profit earned from savings tools to other incomes in the tax returns. The tax paid at source on savings tools was needed to be adjusted with the payable taxes.
According to taxmen, if a taxpayer pays 5.0 per cent tax at source on his gain from savings tools, he will neither have to adjust the amount with the actual payable tax nor add the profit gain to other incomes.
"Investors of the savings tools were required to pay tax as per their annual income slab including income from savings tools. They now need not add that income from this fiscal," said a senior tax official. Â
The tax relief was offered in the budget following the recent cut in the yield rates of savings tools, he added.
Taxmen would accept deducted tax at source on saving certificates as a finally paid tax on the income derived from the instruments, he said.
In the Finance Act-2015, the income tax authority incorporated the provision of giving relief to the small depositors, he added.
Currently, there is 5.0 per cent tax at source on four types of savings certificates.
Humayun Chowdhury, a retired private banker, said if the rate of inflation and the cut in yield rates are adjusted the actual gain from savings tools would be lower.
"This is my main source of earning after retirement. I invested entire amount of my pension into savings scheme," he added.
He underscored the need for allowing private sector retired officials to make investment in pensioners' saving schemes to make their investment safe.
However, economists and policy-makers have suggested keeping the yield rates of savings tools in line with the term deposit rates offered by banks to avoid distortion.
Policy Research Institute (PRI) Chairman Dr Zaidi Sattar said in an atmosphere of falling interest rates on bank deposits, relatively high yield rates on 'Sanchaypatras' are a boon (an implicit subsidy) to savers who are putting in their funds in those..
"The gap between bank interest rates and return on savings certificates has risen to 4.5 per cent in April 2015. Setting high yield rates on savings certificates arbitrarily has little economic justification," PRI Executive Director Dr. Ahsan Mansur said in an article published by the FE last month.
Dr Zaidi Sattar argued that some investors who have savings of Tk 4.5 million or more is not a small saver. On the demand of some investors for raising the investment ceiling in the case of savings tools to offset loss of slashing interest rates, Dr Zaidi Sattar questioned the government's ability to shoulder the high interest burden on account of its public debt at a time when the interest payments as a share of budget expenditure has been rising fast.
Currently, investment limit for family savings certificate is Tk 4.5 million while for pensioners savings scheme it Tk 5.0 million.
Talking to the FE Thursday, senior secretary to the Finance Division of the Ministry of Finance Mahbub Ahmed said the existing yield rates for saving certificates are high despite the recent cut by 2.0 per cent, compared to the interest rates of term deposits with the commercial banks.
The government considers saving certificates as the safest investment for retired people, widows and other women, he said.
"When it comes to savings instruments, we tend to look beyond the economic aspects. Social aspects should also be considered for public welfare," he said.
The government need not have to borrow money through savings tools as it can easily borrow money from the bond market paying a lower interest rate, he said.
In the budget for current FY, the government has withdrawn tax at source from eight types of investment bonds including wage earners development bond, US dollar premium bond, US dollar investment bond, Euro investment bond, Euro premium bond, Pound Sterling investment bond and Pound Sterling premium bond.
According to available statistics of the Department of National Savings (DNS), the government's borrowing through savings tools marked 145 per cent rise in the last FY.
The government borrowed Tk 287.32 billion through saving instruments in 2014-15 fiscal.
A significant rise in the government's borrowing from savings tools usually pushes up its debt-servicing liability.
Of the existing savings tools, family savings certificate was re-introduced in 2009 for women and senior citizens and pensioners' savings certificates in 2004, for retired officials of government, autonomous and state-owned bodies. Five-year and three-monthly saving certificates were introduced in 1977 and 1998 respectively.
The family savings certificate was first introduced in 1997 during the Awami League government, but its operation was suspended in 2002 by the last four-party alliance government.
doulot_akter@yahoo.com