The Centre is likely to lose more than Rs 1,100 crore this fiscal due to the extension of the tax rebate under Section 88 of the Income Tax Act announced by finance minister Yashwant Sinha while moving the Finance Bill on Friday.
While the minister said he expected a revenue loss of only Rs 700 crore by reverting to a 15 per cent tax rebate for interest-saving investments for those in the income range of Rs 1.5 lakh to Rs 5 lakh, finance ministry officials said the bill would be higher. This is because, taxpayers in the under-Rs-5-lakh income range account for more than 90 per cent of the total income tax collection of Rs 44,000 crore per annum.
Under Section 88, for every Rs 100 invested in specific savings instruments the salaried class gets a tax rebate. In the budget, the finance minister had taken credit for a Rs 2,000 crore additional revenue mop-up because of the reduction in the tax rebate from 20 to 10 per cent.
The officials also said the extension of the maximum limit for investment under the section to Rs 1 lakh from Rs 80,000 was a retrograde step because it reversed the logic of the Parthasarathi Shome Committee.
A member of the Shome Committee, DK Srivastava of the National Institute of Public Finance and Policy in New Delhi, said the hike in the permissible investment limit indicated a lack of conceptual clarity in the government on the issue. He said the twin steps of slashing income tax rates and phasing out exemptions would now take much longer to implement.
Finance ministry officials also acknowledged that now it had become difficult to accomplish the phase-out by the next budget.
Srivastava accepted that it was difficult to implement the cut in tax rates as proposed by the committee in a year of weak revenue collections. But, he added that the finance minister had underestimated the revenue loss because of the step.
