Co-operative banks, which were brought under the income tax net last year, have sought tax exemption in the coming Budget. In a proposal, the banks have urged the finance ministry to exempt them from paying taxes till their financial health improves significantly. In Budget 2006-07, finance minister P Chidambaram announced that co-operative banks, like any other lending institutions, would be brought under the income tax net.

Representatives of co-operative banks also held a meeting here on Monday to discuss relevant issues related to the tax structure. The finance ministry said it was important to bring co-operative banks under the tax net as there was significant amount of unaccounted money that was lying with these banks.

That apart, the ministry was in favour of bringing all deposits in the saving accounts in co-operative banks under the annual information returns. The finance ministry is also keen to restructure co-operative banks along with the regional rural banks as they would be crucial for the Centre's much-hyped financial inclusion project. The Centre has already approved a Rs 15,000-crore package, as recommended by the Vaidyanathan Committee, for the restructuring of co-operative banks.

There is also a proposal to bring co-operative banks under the regulatory ambit of the Reserve Bank of India, in order to integrate them with the banking system.

The government, however, said that the co-operative banks would be given their due financial package for restructuring only after the respective states signed an MoU with the Centre. Currently, the co-operative banks come under the state government. But, so far, only a few states have signed the MoU with the Centre for availing financial assistance.

Sources pointed out that the Budget for 2007-08 might lay stress on the implementation of the Vaidyanathan Committee report.