The limit of Rs 1.5 lakh in respect of deduction under Section 80C has remained constant for almost half-a-decade now, and that needs to be increased in the upcoming budget.
Section 80C of the Income Tax Act, 1961 allows you to save tax by making investments or expenditures under various categories. Every taxpayer who invests in qualified investments (Tax Saving Mutual Funds, Public Provident Fund (PPF), National Savings Certificate (NSC), etc.) or incurs qualified expenditure (Children Tuition Fees, Housing Loan Principal Repayments) can claim deduction from their taxable income. At present, the deduction under Section 80C is available up to Rs 150,000.
Tax experts, however, say that the limit of Rs 1.5 lakh in respect of deduction under Section 80C for various common tax-saving investments/ expenditure has remained constant for almost half-a-decade now. Keeping in mind the current economic scenario, encouraging demand is one of the priorities of the government. And that can also be done by increasing the limit of 80C in the upcoming budget.
How will the hike in 80C limit benefit taxpayers?
1) Currently there are as many as 25 various investments and expenditures covered under Section 80C of the Income Tax Act, which include Provident Fund, PPF, NSC, Children Tuition Fees, Housing Loan Principal Repayments, Tax Saving Mutual Funds, 5 Year Term Deposits, Life Insurance Payments, etc. With the ceiling limit of Rs 1,50,000 for all the avenues in aggregate, it leaves little room to opt for other investment avenues.
For example, a taxpayer who opts to invest in PPF to the tune of Rs 1,50,000 is not eligible to claim additional expenditure incurred towards Children Tuition Fees, Housing Loan Principal Repayments or additional investments made into tax saving mutual funds, NSC, etc. An increase in the limit would help taxpayers in reduction of overall taxes besides paving way for higher propensity to save.
2) The real estate market has been witnessing a surge in investments on account of housing loan rates at an all-time low. “Presently, the housing loan principal repayment is also included within the aforesaid limit of Rs 150,000. Since housing is an essential part of an individual’s life, a separate deduction towards the housing loan repayment is the need of the hour. This would allow taxpayers availing higher deduction towards housing loan repayments besides allowing them to save additionally towards other investment categories,” says Sudhakar Sethuraman, Partner, Deloitte India.
3) Salaried taxpayers opting for Provident Fund contributions or National Pension Scheme partially or fully exhaust the limit of 80C of Rs 1,50,000. Therefore, a salaried taxpayer is deprived off from taking additional deduction by investing in PPF, NSCs for a higher rate of return on these deposits or by incurring expenditure towards children tuition fees, etc. Therefore, a hike in the limit would help the salaried taxpayers to invest in small saving schemes or other avenues that result in a higher rate of return over term deposits.
4) The pandemic has resulted in increased expenditures towards constant hygiene and well-being of an individual besides his family members. “It is high time that the government hikes the limit of 80C deduction or carves out common investments or expenditures by creating an additional deduction towards such payments which would help the common taxpayer reduce taxes and save for additional expenditures at their end,” informs Sethuraman.
5) The limit under Section 80C was last hiked in the Union Budget of 2014-15, from Rs 1,00,000 to Rs 1,50,000. Ever since, the rate of inflation has been rising and the same can be witnessed in the form of rising prices of commodities, etc. In addition, the interest rates on saving bank account or fixed term deposits have also fallen to lower levels. Therefore, it is essential for taxpayers to be able to save more by investing into multiple schemes besides reaping the benefit of reduced outflow of taxes.
However, it may be noted that a taxpayer who opts for the new tax regime is not eligible to claim deduction under Section 80C as referred above.
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