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BW Businessworld

Kisan Vikas Patra: To Invest Or Not To Invest

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A new investment instrument was issued recently by the government. Whether to invest in the new Kisan Vikas Patra Scheme or not should be decided by investors after reviewing the salient features of this new instrument.
 
Detailed guidelines have now been made available with the publication of Kisan Vikas Patra Rules 2014. It may be noted that investment in the Kisan Vikas Patra of 1988 regime was scrapped and they were no longer available for purchase. However, the earlier Kisan Vikas Patra provided for higher yield and lower period of holding of instruments. Therefore, do not compare the erstwhile instruments with the new format under which they have been issued.
 
Let's look at the salient features of the newly launched Kisan Vikas Patra:
 
- Money invested will double in eight years and four months. In the earlier scheme, the period was five and a half years.
- Interest will come to about 8.7 per cent per annum.
- KYC norms would not be necessary. The PAN card is not required, but identification and proof of residence must be given.
- The best feature of Kisan Vikas Patras is their safety and security of investment.
- The HUF and NRIs cannot invest in Kisan Vikas Patra. This instrument will be available in the denomination of Rs 1,000, Rs 5,000, Rs 10,000, and Rs 50,000. However, there is no upper limit for investment.
- Due to a decline in the savings rate, the new Kisan Vikas Patra has been introduced to provide yet another investment avenue, especially for small investors.
- Kisan Vikas Patras should not be treated as an instrument to plough back the black money.
- The biggest disadvantage of investing in the Kisan Vikas Patra is that it does not enjoy any tax benefit. For example, the benefit of Section 80C is not available and likewise the benefit of interest exemption is not available. The interest will be taxable.
 
Investors can purchase these certificates from any post office doing savings bank work. The investor is free to purchase any certificate from the following three types of certificates available for sale:
- Single Holder Type Certificates
- Joint A Type Certificates
- Joint B Type Certificates
 
The Single Holder Type Certificate may be issued to an adult for himself or on behalf of a minor or to a minor himself. Likewise, a Joint A Type Certificate may be issued jointly to two adults payable to both holders jointly or to the survivor. Similarly,  a Joint B Type Certificate can be issued to two adults payable to either of the holders or to the survivor.
 
Any person who desires to purchase the Kisan Vilas Patra is required to fill up a simple application form. This form can be submitted to the Post Office personally or through authorised agent of the Small Savings Scheme at Post Office or at a bank. All banks have not been permitted to issue Kisan Vikas Patras. Only the State Bank of India and its associate bank and designated branches of nationalised and other commercial banks that are authorised to receive investment for Public Provident Fund Scheme are permitted to issue Kisan Vikas Patras.
 
The application form contains the details of a nominee in the event of death of the investor. For investment by a minor, the date of birth of the minor is required to be given together with the name of the person who is authorised to encash the certificates on maturity by the minor's parents or  guardian.
 
The certificates may be transferred from one Post Office or bank to any other Post Office or bank after making an application. It is simple to transfer Kisan Vikas Patras from one person to another person with the consent in writing to an officer of the Post Office or bank. Likewise, there are simple rules and procedures for the transfer of certificates to the nominee of the deceased holder.
 
Another special feature of Kisan Vikas Patras is that pledging of these certificates is easy and simple. There are specific provisions with regard to transfer of the certificate purchased on behalf of a minor child.
 
The maturity period of Kisan Vikas Patras of any denomination is eight years and four months, commencing from the date of the issue of this certificate. Thus, the certificate of the denomination of Rs 1,000 will bring to the investor the sum of Rs 2,000 at the time of encashment on maturity. The Kisan Vikas Patra Rules further provide for premature encashment of the certificates. A special feature is that these certificates may be prematurely encashed at any time especially on the death of the holder.
 
On the occasion of premature encashment of the certificate the face value of the certificate together with simple interest calculated at the rate applicable for Post Office Savings Account shall be payable by the Post Office.
 
For taxpayers who come within the highest income bracket, the investment in Kisan Vikas Patra may not be a profitable investment. However, the best investment of Kisan Vikas Patra will be for all those persons who have incomes much below the basic income-tax exemption so that the impact of income tax is not felt by them at the time of encashment.
 
For example, those who come within the 30 per cent tax bracket, it may not be a good idea to invest in Kisan Vikas Patras. Another important feature of the scheme is the encashment, which is the provision relating to premature encashment of Kisan Vikas Patra which provides for modality to the tax payer. Likewise, free and easy transferability of this Kisan Vikas Patra also helps the taxpayer to be tempted to make investment in this new instrument of investment.
 
A word of caution: do not ever think that your investment in Kisan Vikas Patra is out of your unaccounted income or wealth because if big amount is invested, the Tax Department always has the power to question you about the source of investment.
 
Thus, we can conclude that for small tax payers and for persons with no taxable income right now, including your wife, it is a good instrument for an investment that will grow in due course. Another special feature is that one can make investment in Kisan Vikas Patra at any point of time.
 
Subhash Lakhotia is a tax and investment consultant based in New Delhi