Budget 2024 income tax: Section 80C limit needs to be hiked
It seems that experts are suggesting that Finance Minister Nirmala Sitharaman, in the upcoming Union Budget 2024, should consider providing relief to taxpayers. One recurring demand is to increase the limit for deductions under Section 80C from Rs 1.5 lakh. This limit was last revised in the 2014-2015 Budget, having been raised from Rs 1 lakh.
Salaried income taxpayers widely utilize Section 80C to claim deductions for various investments and expenses under the Income Tax Act. If the limit is increased, it could potentially offer more tax-saving opportunities for individuals and encourage investments and savings.
Section 80C of the Income Tax Act
Certainly! Salaried individuals widely utilize Section 80C of the Income Tax Act to avail tax deductions for various investments and expenses. This section allows taxpayers to reduce their taxable income by investing in specified financial instruments or by incurring certain expenses. The maximum deduction limit under Section 80C is Rs. 1.5 lakh.
Some of the popular options covered under Section 80C include:
- Employee Provident Fund (EPF): Contributions made towards EPF are eligible for deductions under Section 80C.
- Public Provident Fund (PPF): Investments in PPF qualify for tax benefits.
- Life Insurance Premiums: Premiums paid for life insurance policies for oneself, spouse, and children are eligible for deductions.
- Equity-Linked Savings Schemes (ELSS): Investments in ELSS, which are equity mutual funds with a lock-in period, are eligible for deductions.
- National Savings Certificate (NSC): NSC investments are eligible for deductions under Section 80C.
- Sukanya Samriddhi Yojana (SSY): Contributions made towards the SSY for the benefit of a girl child are eligible for deductions.
- Tax-saving Fixed Deposits (FD): Certain fixed deposits with a lock-in period of five years or more are eligible for deductions.
- Repayment of Home Loan Principal: The principal component of the home loan EMI is eligible for deductions.
- Tuition Fees: Payments made towards the tuition fees for children’s education are eligible for deductions.
- Senior Citizens Savings Scheme (SCSS): Investments in SCSS are eligible for deductions for senior citizens.
Taxpayers need to be aware of the various options available under Section 80C and choose investments based on their financial goals and risk appetite. Additionally, keeping track of the overall limit of Rs is advisable. 1.5 lakh to maximize the tax benefit
Section 80C of the Income Tax Act offers tax benefits to salaried individuals, allowing them to claim deductions of up to ₹1.5 lakh for investments in various income tax-saving instruments. These instruments include the Public Provident Fund (PPF), five-year fixed deposits (FD), Equity Linked Savings Schemes (ELSS), and National Savings Certificates, among others. Both individuals and Hindu Undivided Families (HUFs) are eligible for these income tax deductions.
Experts argue that there is a pressing need to increase the deduction ceiling under Section 80C. This recommendation is based on the evolving economic landscape, rising costs of living, and the need to encourage individuals to save more for their future. An increased deduction limit would give taxpayers more flexibility and incentivize them to invest in long-term savings instruments, ultimately fostering a culture of financial prudence and stability.
Increasing the 80C deduction limit can provide middle-class taxpayers with the opportunity to save more on their taxes. However, it’s important to note that the benefits of this measure tend to favor higher-income earners. A more balanced approach would involve maintaining existing limits for the well-off while introducing separate allowances for small savers, specifically for building retirement and housing funds.
Implementing a tiered encouragement system across different income segments, rather than implementing across-the-board deduction hikes, would be a more optimal strategy. This approach aims to deepen participation in tax-saving initiatives while ensuring that the advantages are distributed proportionately across various income groups.
Why Section 80C limit should be hiked
The ceiling for deductions under Section 80C, fixed at Rs 1,50,000, has remained stagnant for a consecutive nine-year period, with the last revision dating back to the fiscal year 2014-15.
Considering the persistent inflation trends over the years and the predominant utilization of this limit for provident fund contributions and housing loan principal repayments, this threshold must be elevated to a more substantial Rs 250,000.
Given the myriad options available for deductions under Section 80C, the existing cap may deplete swiftly, particularly among commonplace choices such as employee’s PF contribution, LIC premiums, and PPF deposits. The government should contemplate augmenting the prescribed limit by an additional Rs 50,000 to accommodate these diverse financial avenues.
THE SAID LIMIT BY ANOTHER RS 50,000
Experts suggest that the Interim Budget is unlikely to make significant alterations to the income tax landscape. Therefore, any adjustments to the Section 80C limit are not anticipated on January 1, 2024. Given that this is an interim budget or a vote-on-account, it is advisable not to expect major changes to the individual tax structure.
The government’s primary focus is to promote the adoption of the new personal tax regime, aligning with the trend observed in recent budgets. It may pose a challenge to raise the 80C limit, as this deduction is presently not applicable in the New Personal Tax Regime.
