Slashing Of Rate On NSS-87 Is An Atrocity

Updated: May 18 2003, 05:30am hrs
I am employed in a private company. My total income from salary is Rs 1 lakh. I am holding LIC as well as GIC agency from April 2002. The commissions earned during the current FY are Rs 30,000 and Rs 20,000 from LIC and GIC respectively. We get a rebate on the first year commission @50 per cent & 15 per cent on renewal. For LIC, if separate figures of commissions are not given, then we can take 33.33 per cent deduction on the total commission.

But there is no renewal commission for GIC. Can I directly take deduction of 33.33 per cent for GIC VR Desai,

As per a CBDT Circular 648 dt 30.3.1993, LIC agents having total commission (including first year commission, renewal commission and bonus commission) of less than Rs 60,000 for the year and not maintaining a detailed account for expenses incurred by them, may be allowed an ad hoc deduction as follows:

* Where separate figures of first year and renewal commission are available, 50 per cent of first year commission and 15 per cent of renewal commission;

* Where separate figures are not available, 33.33 per cent of the gross commission. In both the above cases, the ad-hoc deduction will be subject to a ceiling of Rs 20,000. The gross commission includes the first year as well as the renewal commission, but excludes bonus commission. Benefit of ad hoc deduction will not be available to agents with a total commission of over Rs 60,000 during the year.

There is no separate Circular for GIC agents.

You will do well by maintaining detailed accounts of the commission and the expenses incurred necessarily to earn the commission. In that case, you may be able to claim higher deduction than the ad hoc one.

It is, indeed, the worst news to learn that the interest rate on small saving scheme (NSS-87) has been slashed from 11 per cent to 7.5 per cent w.e.f 01-03-03 i.e., by almost 32 per cent. This was never mentioned in the Budget nor commented upon by anybody so far. I hope the tax-free status of the estate in the hands of the legatee is continued as heretofore and is not dropped under the new dispensation. Kindly confirm.

In view of such a steep fall in interest, would it not be advisable for senior citizen pensioners, with total income well bellow Rs 1,83,000 per annum, to exit from the scheme and yet escape the tax u/s 88B, rather than leave it as estate for the legatee The net amount can be invested either in PPF or monthly interest scheme of post office or for that matter even in new insurance schemes with interest rate @9 per cent per annum.

I shall be glad if you would advise in the above matter for the benefit of many senior citizen pensioners like me. Ghanshyamdas Bhuneja,

Apathy towards violation of natural justice by our elected leaders is our national malaise. Whenever the situation occurs, we do not seek for an escape route and accept the injustice without even a whimper. This encourages the authorities to indulge more and more in such atrocity until it really becomes unbearable and the investor realises that he has to do something.

NSS-87 is a typical example of such atrocities. The scheme was launched in 1987 and the lock-in period was three years. When any investor desired to withdraw the entire amount from the scheme, he was told that the interest is deemed to be reinvested in the scheme and therefore has a lock-in of three years! This rule was very much present, albeit in fine print and most of the investors, including yours sincerely, had missed its implication. This implied that the investor could never close the account. I protested heavily, but I found that I was the only and lonely vanguard. No one joined me.

Later, TDS was slapped on all withdrawals of over Rs 2,400. I again protested and once again I found that I was only one vanguard.

And now, this reduction in the interest rate on a scheme which is discontinued. Last year, I had heaved a sigh of relief when I found that interest on NSS-87 was not touched and remained put at 11 per cent. This was equity and justice since the investors were trapped in the scheme. Exiting attracts full tax on the capital as well as the interest. The only option is to leave it as an estate behind you and thankfully, it is not taxable in the hands of your legatee.

This year, the rate on NSS-87 has been dropped from 11 per cent to 7.5 per cent. A large portion of the governmental outflow is on account of interest. Therefore, it suits the government just fine to talk down interest rates. Users of money similarly are ecstatic. They too will be borrowing at lower rates. It is only the savers who are dismayed. They are told that inflation is low and the real rate of return is still quite healthy. The only problem is that the reality is different and the pressure on interest rates is northwards. I wonder how the economy will react to this illogical reduction.

I feel that this is a fraud perpetrated by our government on its own people. This is a perfect case for good samaritan to go in for PIL. I do not have the time, energy or funds to undertake this assignment. Any takers

Mr. Kirit Somaiya, of Jago Investor ... are you listening You are our only hope.

Yes, your suggestion of To escape from NSS trap by using the Sec 88B is excellent. You may also use PPF to save taxes on additional withdrawals from NSS87. I had been propagating this very strategy, ever since FA92, discontinued NSS-87 and replaced it with NSS-92. You may refer all my editions of book How to convert a taxpayer into a taxpayer ever since its first edition to eighth edition. Subsequently, I dropped the chapter to make room for more important aspects. Currently, my edition is available in its 11th edition.