BOMBAY, 22 July — This is that time of the year when investments are made and a lot of thought is given to tax planning.
For Non Resident Indians (NRIs) the task is all the more vexing as they have to make investments and savings while keeping track of the rules and regulations in India and abroad.
Keeping the money invested in dollars is indeed a good idea as for the NRI, a falling rupee means a rising bank balance, fiscal deficits and balance of payments are things that economists have to worry about! Till some time back, it was a good idea to keep most of the savings in dollar accounts (FCNR) as the appreciation in the dollar vis-a-vis the rupee was much higher than what it would have earned on mere interest. But over the past few days, it was seen that the rupee was actually appreciating against the dollar and forex analysts say that the rate is expected to remain more or less stable for the next few months. Infact some analysts are of the opinion that with India estimating a GDP of 8 percent for the current fiscal the rupee might stay rock steady.
So on this context, when Indian banks offer an interest rate in the bandwidth of 6-8 percent, isn’t it a better proposition to convert some of your earnings to rupee accounts back home? The ideal way to save under the current scenario would be to keep some savings in rupee accounts that will help you earn around 8 percent interest and the rest of the savings could be invested. NRIs are freely permitted to invest their funds in government securities/National Savings Certificates/units of UTI through authorized dealers (banks authorized to deal in foreign exchange).
Units of UTI can also be purchased and resold directly from UTI. But in the current scenario, given the falling interest rates and the tax benefits, Reserve Bank of India (RBI) relief bonds are the best option.
Relief bonds were first introduced in April 1997 to tide over drought conditions then prevalent in India. These bonds continue to be available for sale at all branches of RBI and specified branches of SBI and other nationalized banks.
This is a scheme wherein individuals on their own behalf or on behalf of minor and NRIs can invest on a repatriation basis. The minimum investment limit is Rs.1,000 and the maximum is Rs.2 lakhs. A person having invested Rs.2 lakhs in March 2002 is not eligible to purchase relief bonds of old series as he has consumed his limit. The annual maximum limit for investment is applicable 12 months period from March 1, 2002. The investor is required to furnish a declaration that his investment including reinvestments and matured unencashed bonds does not exceed Rs.2 lakhs and if such declaration is found to be false, the amount invested is liable to be refunded without interest.
The 2-lakh yearly limit starting from 1. 3. 2002 for 12 months includes fresh investment, reinvestments and matured relief bonds not encashed. The limit is not applicable to investments of earlier series, which are not matured.
On maturity of the bonds, redemption proceeds will be paid by the receiving office itself by credit to the bank account of the holder.
These bonds carry a maturity period of 5 years and what makes this scheme the most attractive proposition is that interest rate of 8 percent which is tax free. Also the bonds are exempt from wealth tax. Interest is paid half yearly on Jan. 1 and July 1 every year and the cumulative option is also available. While RBI bonds cannot be redeemed prematurely and must be held for the entire duration of 5 years, you can always exercise the option of selling RBI bonds in the secondary market if you so desire.
These bonds are issued in dematerialized form (Demat), namely in the form of "Bond Ledger Account". Investors can make further investments in the bonds in the same Bond Ledger Account. A "Certificate of Holding" will be issued to the investors evidencing the holding of the bonds.
RBI bonds are best if safety is of paramount importance, infact you couldn’t ask for a better deal, as this is the safest instrument to invest in. In case of the cumulative option, bonds issued at a face value of Rs.1,000 are redeemed at Rs.1,516. RBI bonds are issued by the country’s central bank, the Reserve Bank of India. These are among the safest instruments available for investment, and thus you can be assured of getting back the full amount of your investment.
Your income from RBI bonds is assured. Since the issuing entity is the country’s central bank, the risk on this investment is nil. In case of the half-yearly interest payment option, the rate of return is 8.5 percent. In case of the cumulative scheme, where you receive the total interest at the end of the tenure of 5 years, the simple interest works out to 10.32 percent at the end of the tenure.
The bonds can be sold or transferred to another party. If the bonds are in the form of Bond Ledger Account (BLA), they can be transferred by execution of a transfer deed in the prescribed form. However, transfer shall not be deemed as complete until the name of transferee is registered as holder of the bond in the Office of Issue. A new BLA will be opened in the name of the transferee (whom the bond has been sold to) for the remaining period by closing the BLA of the transferor (original holder of the bond). The bond in the form of promissory note (PN) will be transferable by endorsement and delivery.
Well, you can ponder over these facts and then make a call but it is imperative that if you want your money to earn more, you need to move fast.
