Great Budget for savers

The Union Budget for 2006-2007 has spared savers the impact of the EET (exempt, exempt tax) regime, which the Finance Minister had talked about in the last budget.

Besides, he has brought five -year fixed deposits of scheduled banks under the purview of section 80C thereby making them eligible for a tax break. In addition, he has also brought pension schemes, currently under section 80CCC, within the ambit of section 80C.

By not introducing EET, the FM has allowed savers some more breathing time before their investments get taxed on withdrawal.

Currently, savings products such as PPF, which are eligible for a tax-break in the contribution and accumulation stages, are not taxed on maturity.

Five-year fixed deposits have now become an attractive product because in addition to the upfront tax-break( which could be as much as 33.6 per cent ) the coupon too would be high at approximately 7.5 per cent.

This return is higher than that on RBI bonds which currently offer 6.5 per cent and both products are equally illiquid since the money is locked-in for five years. If banks offer a higher interest rate, the product becomes even more attractive.

Those who want to save more through pension schemes now have an opportunity to do so. From the current limit of Rs 10,000, they can now invest up to Rs 1 lakh since these schemes now come under the ambit of Section 80C.