Govt seeks I-T exemption for transport pension scheme

The Tamil Nadu government has once again requested the Union finance ministry to provide income tax exemption for the State Transport Pension scheme.

In a press release, chief minister J Jayalalithaa said that income tax exemption was available to nationalised banks and certain central financial institutions.

"Despite this situation, I have directed that the pension payments be continued till this issue is resolved in the hope that income tax exemption will be extended," she added.

A modified scheme of payment of pensions to retired state transport corporation employees through a separate trust was introduced in Tamil Nadu 2000. The Tamil Nadu State Transport Employees Pension was designed on the basis of exemption from income tax.

It was assumed that the payments made to the trust would not be taxable as also income of the trust, with payment of penesionery benefits being permitted to be made directly to the beneficiaries without going through the Life Insurance Corporation. Thus the sustainability of this entire pension scheme rested on the exemption from the income tax.

The state government had sent a letter on September 25, 2001, requesting for income tax exemption. A reply has been received for the same from the department of revenue, ministry of finance, Government of India, on August 13, 2003, turning it down.

The pension scheme was designed under the assumption that high interest rate regime will continue. Unfortunately, the subsequent sharp reduction in the interest rates that the pension fund trust can reasonably obtain has also made the entire scheme unworkable.

The statement further said that both the assumptions on the income tax exemption and continuance of high interest rate on investment have been belied.

It is unfortunate that the previous government in Tamil Nadu did not think through the scheme carefully and there is a situation where the entire scheme is clearly not sustainable. Actuarial projections indicate this fact unerringly that the scheme is not sustainable in the long run.

The Tamil Nadu government has asked the central government to give special consideration on this issue for the welfare of the 1,15,000 state transport corporation workers.