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Govt to public: Go for stocks

The 2003-04 Budget not only discourages direct savings, it has also made investing in life insurance schemes less attractive.

india Updated: Mar 04, 2003 01:18 IST

The 2003-04 Budget not only discourages direct savings, it has also made investing in life insurance schemes less attractive.

The salaried class will no longer get the benefits it has so far from single premium life insurance schemes under Section 88 of the Income Tax Act. The 15 per cent tax rebate will no longer apply if the premium amount exceeds 20 per cent of the sum assured. Also, in such cases, the maturity sum will now be taxed.

After the 1 per cent cut in interest rate announced by Finance Minister Jaswant Singh in his budget speech, the new rates of interest on public small savings schemes will be thus: PPF 8 per cent; RBI Relief Bond (up to Rs 2 lakh) 7 per cent; RBI Relief Bond (over Rs 2 lakh) 6 per cent. The rates will be effective from March 1, 2003.

The government's idea, clearly, is to push the salaried class into investing in the stock market. The finance minister has given tax sops (dividend tax and long-term capital gains tax are withdrawn) on equity investment.

The obvious question is, what happens to those who have already invested in single premium life insurance schemes. In the last 10 months (up to January), private companies collected Rs 234 crore and LIC collected Rs 2,337 crore just from such schemes. Companies are not willing to comment, and the government has not explained yet.

Also, the fate of the now no-longer-attractive schemes seems doomed. Though they are not confirming yet, most companies are likely to dump their single premium products.

"This proposal will adversely affect the industry, which is in its nascent stage," said Aviva Life insurance CEO Stuart Purdy.

The budget, however, has made an attempt to make things easier for senior citizens. The LIC will launch Varishtha Pension Bima Yojna, that will offer a monthly pension of 9 per cent to those over 55. When the person dies, the initial amount will be returned to the nominee.


OLD DEALS

Schemes that will be affected:

• Bima NiveshLIC
• Jeewan Shree (some products)LIC
• Life Link ICICI
• Young SanjeevanSBI Life
• Single PremiumHDFC Standard