The revenue department may garner an additional Rs 5,000 crore in the next fiscal from scaling back exemptions under Section 88 of the Income-Tax Act. But the department, after setting an over-ambitious revenue growth target of 25 per cent for the current fiscal, has not accounted for this sum in the budget for 2002-03.
Instead, it has set a far more conservative target of only Rs 2,000 crore on this head. Accordingly, the overall budgeted tax revenue is expected to be Rs 235,800 crore, of which direct taxes are estimated to yield Rs 91,585 crore.
Announcing the budget, finance minister Yashwant Sinha said he would mobilise an additional Rs 6,000 crore in direct taxes in 2002-03. This includes Rs 2,750 crore from the 3 per cent surcharge on income.
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Sources in finance ministry said the break-up for the additional resource mobilisation was about Rs 2,500 crore (net of exemptions of Rs 250 crore for the lowest income bracket) from the surcharge, another Rs 2,000 crore from the phasing out of exemptions under Section 88, and about Rs 1,500 crore from other phase-outs.
Sources said the reason for keeping the additional Rs 5,000 crore out of the estimates was prompted by a conservative fiscal deficit target of 5.3 per cent of GDP. But if the additional sum is factored in, the fiscal deficit target could be nearer 5.1 per cent.
Under Section 88, investments in instruments like the Public Provident Fund, life insurance premiums, provident funds, National Savings Certificates and other post-office savings schemes used to enjoy a 20 per cent income tax relief. But the Finance Bill, 2002, has reduced the exemption to 10 per cent for incomes between Rs 1.5 lakh and Rs 5 lakh per annum. For those above Rs 5 lakh, the exemptions have been phased out totally. The move is in line with the recommendations of the Parthasarathy Shome Committee to rationalise tax rates.
Sources said the revenue department was hamstrung by the absence of reliable figures on tax leakage in different income slabs. But they said they would look at tapping individuals with incomes of above Rs 5 lakh.