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Lower Exemption To Net Rs 1,700 Crore

Our Economy Bureau  |  BUSINESS STANDARD 

The Centre expects to earn an additional Rs 1,700 crore this fiscal from the 5 per cent reduction in income tax exemption under Section 88.

In Budget 2002-03, the Centre had reduced the tax exemption under the section to 15 per cent from 20 per cent. The higher exemption was only available for those with annual incomes of up to Rs 1.5 lakh.

The revenue department has accordingly been able to offer the higher rate of standard deduction in the current Budget at a cost of Rs 800 crore to the direct tax kitty by partially foregoing this incremental revenue.

The finance ministry, which was under a lot of pressure to completely curtail Section 88 benefits, has instead decided to include two new clauses.

These are investment in banks and FIs that will finance projects in special economic zones and sum of Rs 24,000 for the education of two children under the overall ceiling provided in the section.

The Centre is also expected to soon come out with the norms of what constitutes valid educational expenses.

These will cover fees for tuition but not that of development or other expenses.

The bills from all recognised educational institutions will constitute a valid voucher for it.

The ministry has, however, made it clear that the benefits will be applicable for only those with an annual income of up to Rs 5 lakh.

This means that those above that limit will not be able to offset their income with the benefits under the new sections.

The bill says the provision will boost the export sector, as the term eligible issue of capital under the section has been broadened to include an issue made by a public company or public financial institution to be entirely invested in operating and maintaining an industrial park or special economic zone.

Till now eligible issue of capital included provision of infrastructure or basic or cellular telecommunications services.

Under this clause individuals can enjoy the benefit of investment in another sum of Rs 30,000 over and above the Rs 70,000 for savings instruments.

Clarifying the provisions under the surcharge rules, sources said the incremental tax liability for those with an annual income of above Rs 8.5 lakh exceeded the additional income up to an annual income of Rs 8.84 lakh.

But beyond Rs 8,84,190 the 10 per cent surcharge fell below that of the additional income. But the Finance Bill has incorporated a provision to ensure that for those whose income fell in this range the surcharge would not exceed the additional income.

First Published: Fri, March 07 2003. 00:00 IST