This has become necessary in view of the ministrys decision to restructure the small savings scheme as per the recommendations of the YV Reddy Committee. The Reddy panel had suggested removal of tax exemptions on short-term and medium-term small savings schemes (maturity of less than six years) and benchmarking of the interest rates on savings schemes to the rates of average secondary market yields on government securities.
Meanwhile, the Insurance Regulatory and Development Authority (Irda) in its report on pension sector reforms, submitted to finance minister Yashwant Sinha in October, pleaded for tax sops for pension scheme with a view to increase social security coverage.
Special thrust to the pension reforms also assumes significance in the background of the earlier decision of the government to revise the pension scheme for government employees based on defined contributions. Since the new scheme has come into effect from October 1, 2002, the ministry will have to provide additional avenues for savings to channelise long-term funds form the government employees joining service after the cut off date.
Giving special emphasis to pension funds would also effectively push pension sector reforms necessary for generating long-term funds and fueling economic growth to attain 8 per cent Gross Domestic Product (GDP) growth rate target in the Tenth Plan.
The Federation of Indian Chambers of Commerce and Industry (Ficci) in its pre-Budget memorandum to the ministry too has suggested that an additional slot of Rs 20,000 under section 88 of the Income Tax Act should be included for contributions to the Old Age Social and Income Security (Oasis) pension.
The chamber has argued that the measure, Would serve the twin objective of encouraging contribution for building up retirement income and at the same time serve the needs of infrastructure development.
At present, Section 88 allows tax rebate of 20 per cent of contribution up to Rs 60,000 under specified savings instruments with additional slot of up to Rs 20,000 exclusively for infrastructure investment.