Indian Finance Minister May Reinstate Savings Tax Break

by Lorys Charalambous, Tax-News.com, Cyprus

03 April 2002

After a wounding defeat at the polls for the BJP which is being blamed on middle class voters angry at budget measures announced two weeks ago, Union Finance Minister Yashwant Sinha is all set to roll back to 20% the rebate on specified savings made by taxpayers earning between Rs150,000 and Rs500,000 a year. In the Budget Sinha had reduced the rebate to 10%.

The BJP is also under pressure from its allies in the National Democratic Alliance. Both these factors could compel Sinha to roll back Budget measures. This could mean is that taxpayers earning upto Rs 5 lakh a year can continue to claim a maximum benefit of Rs 16,000 for life insurance premia, provident fund and similar investments under Section 88 of the Income-Tax Act.

Finance ministry officials told The Times of India that there is "pressure" on the finance minister for a rollback and the Central Board of Direct Taxes (CBDT) has issued a circular to chief commissioners all over the country asking them to collect data, especially from the salaried class.

A source in the ministry said letter number 153/54/2002, issued from the tax planning wing of the CBDT, clearly indicates that there is a "strong possibility" of a rollback because the income-tax department has been asked to collect on a top priority basis the data relating to returns filed during the financial year 2001-2002.

The rebate given on life insurance premia, contributions to provident fund and others under Section 88 ranged from 20% to 30% depending on income and other criteria. But the proposed deduction in the Budget 2002 restricts it to 10% for the income band Rs150,000 to Rs500,000 and offers nothing to the income band of Rs500,000 and above.

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