The Hindu : UTI clarification

Online edition of India's National Newspaper
Sunday, Oct 20, 2002

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National

UTI clarification

K. Madhava Kumar, General Manager, Corporate Communication Cell, Unit Trust of India, Mumbai, writes: This refers to the letter of C.L. Narasimham, (The Hindu, Oct. 5) titled `UTI's victims'. We would like to clarify that as per the provisions of CGGF-86, income distribution at 14 per cent every year is assured for those investors who have joined the scheme from July 1, 1992 onwards till the date of suspension. Bonus dividend was not assured under the scheme.

Currently, as per Section 194K of the Income Tax Act 1961, UTI is required to deduct tax at source (TDS) on income distribution made under its schemes where income distribution made under its schemes where income distribution exceeds Rs. 2,500. For non-deduction of TDS, eligible unit holders are required to submit Form 15H. Where investment is in the name of a minor, income received from such investments would be clubbed with the income of the father/mother (natural guardians) as the case may be.

Accordingly, UTI deducted tax at source from the income distributed (re-invested) under CGGF-86 for the period ended 30/6/2002. In such cases, where TDS is made and Form 16A is issued in the name of the minor, the natural guardian, if his/her income is not liable to tax can claim refund of TDS from Income Tax authorities.

UTI decided to suspend the sales under CGGF-86 with effect from November 1, 1997 as the interest rate of 14 per cent in the scheme was not in line with the falling interest rates prevalent in the market.

Moreover, a high interest rate is not sustainable over a long period of time in view of the declining interest rates scenario.

We would also like to mention that the Cabinet Committee on Economic Affairs at its meeting held on August 31, 2002 granted its approval to a UTI Reform Package.

As per the package, the Government shall meet the shortfall in respect of all the assured return schemes and honour the redemption guarantee in respect of US-64.

It was also decided that in respect of the Assured Return Schemes wherever there is a provision for resetting interest, it will be reset at lower levels considering the current fall in interest rate structure.

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