Investment made in "five year time deposit in an account under Post Office Time Deposit Rules, 1981" will be eligible for deduction from the Gross total income, under section 80C, with the overall section treshold of 1 Lakh.
The additional point to be noted is "The amendment shall apply to investments, as above, made during the financial year 2007-08 and subsequent years."
Below is the summary of the Finance bill presented in the budget:
Enlargement of the scope of eligible saving instruments under section 80C
Section 80C of the Income-tax Act provides for a deduction of upto
rupees one lakh to an individual or a Hindu undivided family (HUF) for,-
(i) making investments in certain saving instruments; or
(ii) incurring expenditure on tuition fee and repayment of housing loan.
With a view to encourage small savings, it is proposed to enlarge the
scope of eligible saving instruments by inserting two new clauses in
sub-section (2) of section 80C. The following investments made by the
assessee, during the previous year, shall be eligible for deduction
under section 80C within the overall ceiling of rupees one lakh:-
(i) five year time deposit in an account under Post Office Time Deposit Rules, 1981; and
(ii) deposit in an account under the Senior Citizens Savings Scheme Rules, 2004.
Further, it is also proposed to provide that where any amount is
withdrawn by the assessee from such account before the expiry of a
period of 5 years from the date of its deposit, the amount so withdrawn
shall be deemed to be income of the assessee of the previous year in
which the amount is withdrawn. The amount so withdrawn, accordingly,
shall be liable to tax in the assessment year relevant to such previous
year. The amount liable to tax shall also include that part of the
amount withdrawn which represents interest
accrued on the deposit. However if any part of the amount so received or
withdrawn (including the amount relating to interest) has suffered
taxation in any of the earlier years, such amount shall not be taxed
again.
