Wednesday, May 19, 2010

Deposit Schemes for Retiring Employees

In the year 1989 for the first time the 9% Deposit Schemes for retiring government employees was launched. The salient features of this schemes were that it was open to any retire Central or state Government employee or retired employee of a public sector company. The retire employee should have opened a bank account for depositing the money under this scheme within three months from the date of receiving the retirement benefits, in selected branches of State Bank of India and its subsidiaries. In case the retirement benefits were received in installments, multiple deposits could be made. There are exhaustive rules for nomination, premature encashment etc. The interest on balance lying in the deposit account is completely exempted from income tax under section 10(15)(iv)(i) of the I.T. Act. Similarly, the entire amount of money lying in this account is exempted from wealth tax. The Finance Act, 1992 had substituted the existing sub-clause (10c) of section 10 with effect from 1.4.93, whereby the benefit of tax exemption of voluntary retirement payment received has been exempted not only for public sector company employees or State Government employees, but even employees of any private sector company. Thus as a result of the amendment of section 10 (10C) of the Income Tax Act, 1961, a very liberal attitude has been shown to the employees of all corporate undertaking who are taking the benefit of voluntary retirement schemes announced by their company. Detailed rules to this effect have also been made. These are known as Income Tax (16th Amendment) Rules 1962, which define various guidelines for the above purpose. Even under the amended scheme, there is no wealth tax on the amount deposited in this scheme. The rate of interest is 8% for deposits under this scheme. With effect from 9-7-2004 this investment option would not be available as the scheme has now been scrapped.

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