Small savings schemes, created with the idea of mobilising savings by encouraging 'small earners', could also benefit the well-off and this is a part of the larger Rs 1 lakh crore subsidy that goes to the higher income sections of society, the official Economic Survey has said. The implicit subsidy from these schemes to the well-off could be as high as Rs 12,000 crore.
It says the relatively well-off sections of society get undeserved subsidies on consumption of commodities and services like gold, cooking gas, kerosene, electricity, railway fares, aviation turbine fuel (ATF) and small savings schemes.
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"Questions also arise about the equity of these schemes - what is the rate offered on these instruments, who benefits from them and how large are these implicit subsidies?"
The Survey said it was misleading to characterise these schemes as 'small'. It said only postal deposits to schemes for the elderly and women could be so termed. Other schemes, including the all-important Public Provident Fund (PPF), and also tax-free bonds issued by state-owned companies, could not.
"The interest rates on most of these schemes are fixed (for a year) but they vary in magnitude and periodicity. Whatever the terms, the key determinant of their real return is their tax treatment," the Survey said.
A lot of these schemes get special tax treatment and the effect is the effective return on these instruments is particularly high, compared with that on a comparable savings instrument. Such as post office savings deposits, 15-year government security as with PPF and tax-free bonds.
"We can indirectly infer how well-off beneficiaries of the PPF scheme are. Roughly 62 per cent of all 80C deductions in FY 2013-14 were accounted for by taxpayers with gross taxable income more than Rs 4 lakh (47 per cent by those earning more than Rs 5 lakh). These individuals are at the 97.3rd and 98.4th percentiles of income distribution, respectively," the Survey said.
"In sum, the effective returns to PPF deposits are very high, creating a large implicit subsidy which accrues mostly to taxpayers in the top income brackets. The magnitude of this implicit subsidy is about six percentage points - approximately Rs 12,000 crore in (annual) fiscal cost terms."
