Press Release

What this is

Press Release was issued by the Central Board of Direct Taxes on 4 January 2012. Its subject is Clarification on Interest Rates on Small Savings Schemes.

This is a clarification. The Board is stating how it reads a provision. That reading binds the department; it does not bind a court, and where the section says otherwise the section wins.

What it does

Clarifies that the interest rates on small savings schemes, though aligned each year with the yield on Government securities of similar maturity with a suitable spread, are fixed and not floating for individual investments other than the Public Provident Fund. The rate prevailing when the investment is made stays unchanged till maturity, and a revision in a later year applies only to investments made in that later period. An investment other than in the Public Provident Fund made on 1 December 2011 therefore carries its rate to maturity despite the revision with effect from 1 April 2012. For the Public Provident Fund, the rate fixed each year applies to all accounts.

Why it was issued

It answers news items in sections of the press suggesting that the rates revised with effect from 1 December 2011 were floating rates that would change with fluctuations in the yield on Government securities.

Who it reaches

• Investors in National Savings Certificates, time deposits and other small savings schemes
• Public Provident Fund account holders, whose position is different
• Advisers projecting returns on small savings instruments

The instrument, as the Board published it

CLARIFICATION ON INTEREST RATES ON SMALL SAVINGS SCHEMES
press release, dated 4-1-2012
Ministry of Finance has clarified that although the rate of interest on small savings schemes will be aligned every year with rates of Government securities of similar maturity, with suitable spread, the rates are fixed and not floating so far as individual investments except PPF are concerned. This is in response to news items appearing in certain sections of the Press that the interest rates on small saving schemes, revised by the Government w.e.f. 1.12.2011, are floating rates, which will undergo change according to fluctuations in the yield on the Government securities.
It has been clarified that the rate prevailing at the time of investments will remain fixed and unchanged till the maturity of the investment. Any revisions in interest rates in subsequent years will only be applicable to the investments made in the relevant period. For instance, investment made in an instrument other than PPF on 1.12.2011 will remain valid till the maturity of that instrument, irrespective of revision of interest rate with effect from 1.4.2012. As regards PPF, the interest rate fixed every year will be applicable to all PPF accounts.
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What to watch

• The Public Provident Fund is carved out: its rate changes every year for all accounts, so a fixed rate cannot be assumed there.
• This is a Ministry of Finance press release on the small savings rates, not a circular of the Central Board of Direct Taxes, and it is not Board authority on any question under the Income-tax Act.
• It says nothing about the taxability of the interest, only about the rate at which it accrues.
• It states the position as at January 2012 and later revisions have their own terms.

Where you meet it

When computing interest accrued on small savings instruments for a return, or explaining to a client why an old certificate carries a different rate from a new one.

← Circular No. 402/92/2006-MC( 1 of 2012)  ·  Circular No. 402/92/2006-MC (32 of 2011) →