Union Budget 2023: SCSS, MIP investment limit doubled, new scheme for women

Mahila Samman Saving Certificate to be available for two years till March 2025, offers 7.5% return, with provision for partial withdrawal

Finance Minister Nirmala Sitharaman announced major changes in the small savings schemes bucket with a doubling of the maximum investment limit under the Senior Citizen Savings Scheme (SCSS) and the Post Office Monthly Income Plan (Pomis).

In her Union budget speech for 2023-24, Sitharaman also announced the introduction of a limited period scheme for women, the Mahila Samman Saving Certificate (MSSC), which will be available for two years till March 2025. The scheme will offer a fixed return of 7.5 per cent. Deposits under this scheme can be made in the name of a woman or a girl child. The scheme will have a partial withdrawal facility as well. The maximum deposit permitted is Rs 2 lakh.

The SCSS maximum investment limit has been hiked from Rs 15 lakh to Rs 30 lakh, while that of Pomis has been raised from Rs 4.5 lakh to Rs 9 lakh in a single name. For joint accounts, the Pomis limit has been enhanced to Rs 15 lakh from Rs 9 lakh earlier.

The SCSS, which offers an interest rate of 8 per cent at present, is open for individuals who are 60 years or above at the time of opening the account. Those who have turned 55 and have retired on superannuation, are eligible to open an SCSS account provided they invest within a month of retirement. The scheme has a lock-in period of 5 years and interest is paid quarterly.

“SCSS is giving good returns. However, one should stagger their investments in the instrument since future interest rates are not known,” Parul Maheshwari, Independent Investment Advisor, said.

Under the MIP scheme, investors receive monthly income in the form of interest. The present rate of interest is 7.1 per cent. “MIP is a relatively less attractive scheme, even compared to current bank FDs rates. Also it is important to keep in mind that investors should look at the actual need for monthly income, especially those in the younger age group,”  Vishal Dhawan, Founder and CEO, Plan Ahead Wealth Advisors, said.

On the new MSCC scheme, Maheshwari feels it is a good investment option keeping in mind the 7.5 per cent interest being offered which is higher than some of the bank deposit rates. Also, the lock-in of two years is low.

Maheshwari, however, feels that one should look at asset allocation before investing in these schemes. “If one has an investable surplus and can handle volatility, one can also consider mutual funds including hybrid funds which are tax-efficient as well as Target Maturity Funds (TMF) if one is able to hold on to the investment till maturity,” she said.

Dhawan suggests considering tax implications before investing in these schemes. “Both SCSS and MIP are taxable. Hence the tax implications need to be analysed especially by those in the higher tax bracket. It is the post-tax returns that matter. The other issue to consider is one’s liquidity needs,” Dhawan said.

Exemption on income from high value insurance policies removed

No tax exemption will be allowed on income from traditional insurance policies where the premium is over Rs 5 lakh, Finance Minister Nirmala Sitharaman announced on Wednesday.

Where the aggregate premium for traditional life insurance policies issued on or after April 1, 2023, is above Rs 5 lakh, income from only those policies with aggregate premium up to Rs 5 lakh will be exempt. However, the provision will not be applicable to unit-linked insurance plans (ULIPs).

“The removal of the exemption on income from high-value traditional insurance plans will impact only a small section of the population, especially the HNIs,” Deepesh Raghav, Investment Advisor, said.

TCS under LRS hiked

Finance Minister Nirmala Sitharaman on Wednesday announced tweaking of the tax collected at source (TCS) on the Liberalised Remittance Scheme (LRS). The rate of TCS for remittances above Rs 7 lakh for any purpose other than education or medical treatment has been revised upwards to 20 per cent from the earlier 5 per cent.

“The rate of TCS for foreign remittances for education and for medical treatment is proposed to continue to be 5 per cent for remittances in excess of Rs 7 lakh. Similarly, the rate of TCS on foreign remittances for the purpose of education through loan from financial institutions is proposed to continue to be 0.5 per cent in excess of Rs 7 lakh. However, for foreign remittances for other purposes under LRS and purchase of overseas tour programmes, it is proposed to increase the rates of TCS from 5 per cent to 20 per cent,” Sitharaman said in her Budget speech.

“The move is a clear signal to deter people from sending money abroad,” Deepesh Raghav, Investment Advisor, said.