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PM okays tax rebate rollback

Subhomoy Bhattacharjee

Prime Minister Atal Bihari Vajpayee has given the green signal to a partial rollback of the withdrawal of benefits under Section 88 of the Income Tax Act. The decision follows a meeting Vajpayee had with Finance Minister Yashwant Sinha on Wednesday.

Sinha is expected to announce the changes while moving the Finance Bill in the Lok Sabha on Friday. Voting on the Bill is slated for Monday.

Government sources said Sinha was also fine-tuning some of the other Budget proposals like changes in the dividend tax and reduction of the fertiliser subsidy.

The Finance Bill is expected to restore the 20 per cent tax exemption for investments made under Section 88 for all those with an annual income between Rs 150,000 and Rs 500,000. The proposal for no tax rebate for assessees with an income of above Rs 500,000 will, however stay.

A calculation made by the finance ministry has shown that tax incidence goes up by almost 50 per cent on those with annual income of up to Rs 200,000 as a result of the Budget proposals. The rollback is expected to benefit about 12.6 per cent of the 28.8 million tax assessees in the country.

Wednesday's meeting followed the one Sinha had with Bharatiya Janata Party MPs on Tuesday. The MPs offered suggestions on relief to the middle class, retaining the exemption under Section 88, rolling back fertiliser prices and allocating higher subsidy for kerosene and cooking gas.

The sources said Sinha also briefed the prime minister about the impact of a rollback on each of the proposals, including restoring the status quo on administered interest rates on small savings.

While government sources said there was no possibility of going back on the move to free interest rates, they acknowledged that the double impact of reduced interest rates and the imposition of a surcharge on income tax had hit the salaried class hard.

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