Last Updated on August 14, 2022 at 1:59 pm
On the 10th of August 2022, the Ministry of Finance announced, ” any citizen who is or has been an income-tax payer, shall not be eligible to join APY from 1st October 2022″. Further, “In case a subscriber, who joined on or after 1st October 2022, is subsequently found to have been an income-tax payer on or before the date of application, the APY account shall be closed, and the accumulated pension wealth till date would be given to the subscriber.” A concerned reader wanted to know if the same rule is possible in the case of PPF, SSY (Sukanya Samriddhi Yojana) or any other small saving scheme.
Atal Pension scheme was meant for the lower-income unorganised sector who usually did not have access to a pension scheme like EPF or NPS. The maximum pension eligible is Rs. 5000 per month. This pension is unlikely to be sufficient for anyone in the taxable bracket today.
So the move to exclude tax-paying assessees from the APY is excellent. Benefits will reach those who need them most, not those who don’t. Now, will the same kind of ruling also be extended to other small saving schemes?
We can only speculate. There are two sides to the story. On the one side, governments should reduce their borrowing and provide benefits only to lower-income segments. The taxation of the EPF scheme beyond Rs. 2.5 lakh contributions is another such move.
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
On the other side, NSSF, the National Small Savings Fund (where PPF, SSY, SCSS, NSC, KVP, MIS, TD, and PO-SB contributions go) is a huge safety reservoir for the government that stabilises our economy and system, as noted by the economic survey of India in the past.
So a balance between debt and borrowing for governance is essential. Sooner than later, we should be ready for a situation where small saving schemes are only eligible for the lower-income segment. This will allow the government to keep the interest rate high for those who do not have much of an investible surplus to take on capital market risk via mutual funds.
The following is our opinion:
- The senior citizen savings schemes will not be impacted.
- PPF is also unlikely to see such a rule change immediately. However, now that the finance ministry has implemented the new tax regime, it can simply lower the tax slabs suitably for all and eliminate section 80C without any “loss” to taxpayers. It could then limit the maximum PPF contribution to much lower than the present Rs 1.5 lakhs. This will also “encourage” those with an investible surplus to seek a more suitable asset allocation.
- The Sukanya Samriddhi Yojana is meant only for girl children born in lower-income households. It offers such families an incentive to educate their children and not marry them young. We believe at least those in the 20% tax slab and above must be excluded from this scheme and expect the ministry to act on this soon.
- The majority of EPF subscribers belong to the 0% or 5% tax slabs. If the EPF is made optional to those in the higher tax slabs, then they are free to invest elsewhere. Those who are contributing more than Rs. 2.5 lakh can also avoid this tax (if subscriptions are made optional). This will allow the ministry to keep the interest rate higher than the benchmark yield and pay interest on time. The fiscal stability of the EPFO (currently fragile) will strengthen.
- Similar arguments also apply to other small saving schemes like monthly income schemes, time deposits etc.
Alternatively, taxpayers need not be excluded from any scheme. The rate offered to those in the 0% or 5% slab can be fixed and higher than the benchmark yield. The rate for those in the higher slabs can accurately track bond yields. This will lower the debt outgo of the government without angering dominant voting demographics.
In summary, we believe that the exclusion of tax-payers from the Atal Pension Yojana is a step in the right direction. Investors should also expect similar rulings (tax slab-based interest rate if not outright exclusion) for other small savings schemes. As our economy grows, we should expect the government only to protect those who need such protection. Those who earn well (relatively) will have to fend for themselves.
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 7000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 2,500 investors and advisors use this!
Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)