[Financial Inclusion] Kisan Vikas Patra (KVP): Features, Money Laundering, NSSF, Small Savings InstrumentsDevendra Vishwakarma
- Small saving instruments (SSI): Meaning & Benefits
- Small Savings instruments: Examples
- National Small savings fund (NSSF)
- Kisan Vikas Patra (KVP): Timeline
- KVP-2014: Salient Features for MCQs
- KVP-1988 vs 2014: what’s the Difference?
- Kisan Vikas Patra & Black money / money laundering
- Kisan Vikas Patra: Other Criticism
- A1: Shyamala Gopinath Committee
- A2: premature encashment
- Mock Questions for CSAT
Small saving instruments (SSI): Meaning & Benefits
- As the name suggests, Small saving instruments promote habit of savings among poor people, saved them from Ponzi scamsters.
- SSIs are launched either through Statutory-Law OR gazette notification. Their Interest rates are “administered” by the government, hence considered risk free investments.
- SSI investments (usually) enjoy tax exemption and tax deduction benefits under Income tax act of 1961. for example
- PPF deposit is deducted from taxable income, upto Rs.1.5 lakhs.
- Interest earned on Post office savings account: exempted from tax. (upto certain amount).
- No TDS (Tax deduction at source) on withdrawals for most schemes.
|1.Post office deposits||Post office savings account, time deposits, recurring deposits, monthly income accounts.||Government Savings Banks Act, 1873|
|2. Savings Certificates||
||Government Savings Certificates Act 1959|
|3.Social security schemes||PPF: Public provident Fund (1968)||Public Provident Fund Act 1968|
|Senior citizen savings scheme (2004)||Government Savings Banks Act, 1873|
^Exact years not important but Chronological order is.
National Small savings fund (NSSF)
- 1999: NSSF was created in the Public accounts of India, on recommendations of R.V. Gupta Committee (Ex.Dy-Governor of RBI)
- The money collected from above small savings schemes, goes to National small savings fund (NSSF) in the Finance ministry.
- From NSSF, money is lent to Union and state governments for financing their fiscal deficit. Usually, 80% of the money is loaned to States and remaining 20% to Union.
|Kisan Vikas Patra launched, to encourage habit of small savings among citizens|
|Shyamala Gopinath Committee says KVP can be used for money laundering, therefore must be stopped. UPA-Government agrees.|
|In budget-2014, Finance ministry Arun Jaitley announced following measures to promote small savings in India:
|Kisan Vikas Patra officially re-launched|
KVP-2014: Salient Features for MCQs
- Launched under Government Savings Certificates Act 1959.
- Awareness Agency: National Savings institute, Department of Economic Affairs in Finance ministry.
- At present, only sold via Post offices. Later, nationalized banks will be permitted to sell KVP as well.
- KVP are available in the Denomination of Rs. 1000, 5000, 10,000 and 50,000.
- There is no Upper Ceiling on Investment. You may invest as much as you want.
- KVP will double your invested money in 100 Months (8 years and 4 months.)
- If you want to pullout money before 100 months, you can do so after
- 30 months =2 years and 6 months OR
- Subsequent blocks of 6 months.
- For more, refer to appendix.
- KVP certificate can be purchase in single individual name or in joint names. Need to submit ID proof and residence proof.
- KVP can be bought using cash, cheque, demand draft BUT
- If Rs.50,000 or more invested, then PAN card copy is must.
- If Rs.10 lakh invested, client will have to give additional proof of income.
- Adult can buy it on behalf of minors. But such certificate can’t be transferred to others as long as minor is alive.
- Nomination facility available i.e. if I die, handover the money to xyz person.
- KVP certificate can transferred to others via post office, for multiple times.
- But to prevent money laundering, during every transfer, both certificate-giver and taker, will have to sign form in the post office along with photocopies of following, under KYC norms (Know your customer)
- ID proof
- Resident proof
- PAN card (if more than Rs.50,000 invested) as per KYC norms. .
- If Certificate is destroyed/lost, client and get a duplicate copy BUT has to submit identity proofs. Therefore, again money laundering difficult.
- Post-master can transfer the KVP certificate from an individual to President and governor, RBI, Banks, cooperative society, PSU, Government companies, Housing finance companies and even local Panchayat and municipalities.
- Above feature is designed, to help the client use KVP as “security deposit” e.g.
- While taking loan from banks, cooperative societies or even housing finance companies.
- As Deposit for contesting elections.
- As “bond money” for certain jobs, such as the fabled ACIO, some PSU-jobs etc.
- Tax liabilities
- Interest earned from Kisan Vikas Patra, is taxable.
- If you gift KVP-certificate to someone, then he’ll have to pay gift-tax to Government.
|Old scheme (1988)||New scheme (2014)|
|Available in denominations of Rs. 100, 500, 1000, 5000 and 10,000||Rs. 1000, 5000, 10,000 and 50,000.|
||8 years and 4 months (100 months)|
|Annual compound interest rate
||Stringent norms. 50k=need PAN card, 10 lakh=need to disclose source of income.|
|Discontinued in 2011||Launched in 2014|
|Was quite popular because of liquidity and easy transfers. KVP used to fetch government ~30% of all money collected in small savings schemes.||Customers’ response yet to be seen. But Government hopes to collect ~35,000 crore rupees.|
Kisan Vikas Patra & Black money / money laundering
- We learned that Kisan Vikas Patra were launched in late 80s but discontinued in early 2010s because of fears about money laundering.
- So, when Jaitley again launched KVP in 2014, Opposition parties again raised concerns:
|Yes it’s possible||Not possible|