The tax benefit has been extended to post office term deposits to bring them on a par with bank deposits following demands by several state governments.
The impact
An individual can now claim tax benefit on post office time deposits. India Post currently offers time deposits in the maturity bucket of one to five years. The interest rates offered on these deposits are in the range of 6.25 per cent to 7.5 per cent. Commercial banks, which have a similar five-year tax-saver deposit, offer a higher return of close to 8.50 per cent. India Post and some state governments have been complaining about the low mobilisation of funds under the post office small savings account.
The mobilisation under the post office five-year time deposit has been on a constant decline.
The outstanding five-year post office time deposits declined by 12.36 per cent to Rs 10,537 crore at the end of September 2007 from Rs 12,024 crore at the end of September 2006, according to the Reserve Bank of India data.
