States are set to reap a windfall this fiscal with the finance ministry planning to transfer the entire proceeds of the 9 per cent Senior Citizens Scheme to the small savings fund. Under the present arrangement, 100 per cent of the small savings collections are transferred to states.

While the government collected Rs 18,000 crore (Rs 180 billion) through the 6.5 per cent tax-free bonds in 2003-04, it is expected that the Senior Citizens Scheme will mop up a similar amount, if not more, in the current fiscal. States will thus stand to benefit with additional resources.

The scheme will be launched on August 1 with post-offices and banks acting as points of sale. The ministry has already inserted an enabling provision in the Finance Bill which will allow designated public sector banks to sell the scheme besides the post offices network.

The amount collected through the 6.5 per cent tax-free bonds did not accrue to the Small Savings Fund and instead were credited to the Centre's public account.