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At present, Section 80C of the I-T Act permits investments of up to Rs 1 lakh in public provident funds, notified pension funds and saving certificates to be exempt from income tax.
“A further increase in the income tax threshold or a re-jig in the income tax slabs may not be possible this year because of revenue constraints. Also, given the need for public investments, increasing the Rs 1-lakh deduction limit will be a good move,” a finance ministry official said.
In last year’s Budget, then finance minister P Chidambaram had increased the threshold for income tax exemption by Rs 40,000 to Rs 1,50,000 and had also re-jigged income tax slabs. The move, though proving popular enough, had significantly eroded government coffers. In 2008-09, personal income tax collections grew just 9.09% to Rs 1,23,967 crore as against Rs 1,18,904 crore a year ago, much lower than the budgeted 16.8%.
According to sources, the proposal to hike the savings limit under Section 80C comes as the government has little fiscal headroom this year to rework the tax slabs or the income tax exemption cap on account of its ballooning fiscal deficit and falling revenue. However, a hike in the 80C limit is also expected to promote more investments in long-term savings which can then be diverted for funding projects like those in the infrastructure sector.
Tax experts though are of the opinion that an increase in the Rs 1-lakh cap under Section 80C may have a limited impact. “Expansion of Section 80C to promote savings and investments would be an ideal move on part of the government. But this should be done along with a re-jig in the income tax exemption limit, otherwise it would only benefit the higher income groups,” says Amitabh Singh, tax partner, Ernst and Young.
Agrees Divya Baweja, partner BMR Advisors. “If the move goes through, it will be a big boost and will be tantamount to increasing the income tax slabs. But for middle and lower income people, whose ability to save is limited, it may not have much effect.”
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Raising it to 1.5 L is good but not sufficient. More in terms of exemption to senior citizens for income from Senior Citizen scheme, raising of contribution to 1 lac in PPF is required to help the older generation and pensioners to lead a respectable life.
If spouse is not working, an additional exemption of say 1.5 lakh may be given. This will benefit families with single earned member. If spouse salary is less than 1.5 lakh, the difference can be allowed. Please consider the suggestion.
This is a win win situation for all! Go for it!
These tax savings schemes have disciplined me to save my earnings and I believe that this is what helps us during rainy days
For income of Rs.6 L, after Rs.1.5 L towards int. on housing loan and Rs.1 L towards 80 C, taxable income is Rs.3.5 L and IT is Rs.25,750 or Rs.2,146 PM.On an average the tax works out to be 4.292%. If Interest of Rs.1.5 L is removed, IT is Rs.46,350 or Rs.3,863 PM or 7.726% PM.Making it simple, IT is nil upto Rs.3 lakhs, 6% for Rs. 3 to 6 L, 12% for Rs.6 to Rs.9 L, 18% for above Rs.9 L per annum. Nothing is exempted and no calculations involved. Income from interest on deposits and dividends are totally exempt for all.Please consider this.We are spending a lot of time in making calculations and making recovery and submitting returns. All this will get minimised.Of course, to minimise reduction of revenue, a higher rate of say 10% can be introduced if taxable income is more than
If done, this would be a good news for the Tax Payer.I have been saying this for the last 2 Budgets. This would definitely diminish the Govt's Tax Collections but the Tax Payer would like to invest Rs 50000 in Long Term Schemes.A Thums Up for this one //