The Hindu Business Line : CBDT okays new investment pattern for PFs

The Income-Tax (Tenth Amendment) Rules, 2003, which have already come into effect, relates to Rule 67 (Sub-Rule 2), which has been now substituted by the latest specification.

For the record, Rule 67 pertains to money contributed to PFs and the manner in which it is invested in instruments like Central Government securities, bonds issued by public financial institutions and mutual funds.

According to the CBDT, the following minimum percentages of investible amounts may be parked in these instruments: 25 per cent in Central Government securities and/or mutual funds; 15 per cent in State Government securities and/or MFs; 30 per cent in bonds/securities of FIs, public sector companies, public sector banks and short duration term deposit receipts of public sector banks. The remaining 30 per cent may be invested in any of the first three categories. Incidentally, the MFs referred to are the `gilt funds' - schemes that have been set up as dedicated funds for investment in Government paper.

It may be mentioned here that the Department of Economic Affairs had in March 2003 outlined the pattern of investment to be made by PFs, superannuation funds and gratuity funds. This was also the subject of a recent notification by the Ministry of Labour. Rule 67 of the Income-Tax Rules, 1962, contains provisions related to the same issue - in the manner prescribed by DEA (and, by extension, the Labour Ministry).

The tax authorities have clarified that money received on maturity of investments made before April 1, 2003 (reduced by `obligatory outgoings') will be invested in line with what has been specified in this sub-Rule.

However, PF trustees may invest a limited amount in bonds or securities of any company (other than a public sector company), which has an investment grade rating from at least two credit rating agencies registered by SEBI. The reference here is to the sub-Section IA of Section 12 of the SEBI Act, 1992.

It is further clarified that in case the rating of any of these instruments falls below the investment grade, then the option of exiting from such investments may be exercised. The released funds may then be invested again in a similar manner.

CBDT has pointed out that `public financial institutions' are those defined under Section 4A of the Companies Act.

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