Panel for removal of tax sops on short term schemes

By Our Special Correspondent

NEW DELHI, OCT. 5. An expert committee on contractual savings has favoured lifting of tax benefits on short to medium term schemes and linking small savings rates with average returns on government securities from April next.

The committee, under the chairmanship of the Deputy Governor of the Reserve Bank of India, Mr. Y. V. Reddy, has suggested withdrawal of the existing tax benefit on small savings schemes including those of Indira Vikas Patra, and other post office schemes, with maturity up to six years.

However, to encourage long term savings, the committee favoured continuation of the tax incentives on the schemes that run for more than six years including that of public provident fund. The committee has also suggested transfer of the entire net proceeds from small savings to States from the current share of 80 per cent.

Official sources here said the Centre would consult the State governments before taking any final decision on the various recommendations of the Reddy committee that submitted its report to the Government recently.

The committee has recommended benchmarking of small savings rates with previous year's average yields on government securities traded in the secondary market with a maximum variation of 0.50 per cent. The administered interest rate should be adjusted every year from April 2002 onwards is the recommendation.

Apart from linking the small savings rate with yield of government securities, the committee has also suggested that the rate should be linked with the inflation rate or the real gross domestic product growth rate, or commercial deposit rates of banks, or the RBI's Bank Rate.

PTI reports:

Finance Ministry sources said the committee had not assessed the revenue loss of the Centre if the entire proceeds of the small savings were transferred to States, but if the recommendations were implemented in this fiscal, States would get an additional Rs. 9,000 crores.The Centre has five months time to finalise the future course of action on small savings which amounted to about Rs. 250,000 crores last fiscal.

The net accretion on account of small savings amounted to Rs. 45,000-46,000 crores last fiscal.

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