New Delhi: The Government of India has decided to make the five year post office deposits and senior citizen's saving scheme floated by the postal department as eligible for Rs. 1 lakh income tax exemption. These saving schemes of post offices will get the tax exemption benefit from 1 April 2007 under Section 80C of the Income Tax act 1961.

Government has also announced a 5 percent bonus for the Post Office Monthly Income Account ( POMIA) scheme. This bonus will be payable on new accounts, which are opened after 8 December 2007. The interest rates offered on postal deposits will now effectively be 8.9 percent as against 8.3 percent available earlier.

This has been a longstanding demand and the government has now made the senior citizen savings scheme and five year postal deposits at par with Public Provident Fund (PPF) and tax saver fixed deposits etc. in terms of tax exemption. However , the tax exemption would be available only for the five-year scheme, which offers 7.5% interest. The senior citizen scheme offers 9% interest. A post-office deposit similar to a bank fixed deposit. with a maximum deposit period of five years.

This move is of great importance to bring investors back to once very popular saving instruments, namely the postal deposits. The decline in interest rates offered by banks on various term deposits are making the investors look for other avenues. With the bonus offered on postal deposits, they would certainly be a more attractive proposition now.