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News Details

15

Jan - 2018

Budget 2018: Section 80C limit may be increased

In the upcoming budget, the government may announce certain measures that can increase your take-home pay which will allow you to save more.



Although there are several measures that the government may introduce, one way of doing this could be increasing the section 80C limit of the Income-tax Act, 1961. Out of the various deductions available under the Act, section 80C is primarily an investment-led tax avenue that helps in reducing one's tax liability.



Further, it helps in increasing savings of individuals that can help them meet their financial goals. "We expect Budget 2018 to increase the Section 80C investment limit for tax saving from the current Rs 1.5 lakh to Rs 2 lakh," says Sonu Iyer, tax partner and people advisory services leader, EY. " The increase in the limit is warranted to account for inflation. These increases would entail loss of revenue for the exchequer but they were also needed to keep the limits in line with inflation, she explained. In Budget 2018, section 80C could see an increase in its limit from the existing Rs 1.5 lakh a year to Rs 2 lakh or possibly even higher. However, the increase may be restricted to one or two specific tax-saving products within the section 80C basket. The exemption limit was last raised in the 2014-15 budget where it was increased from Rs 1 lakh a year to Rs 1.5 lakh. Current 80C basket Currently, section 80C allows deduction from gross total income (before arriving at taxable income) of up to Rs 1.5 lakh per annum on one or more eligible investments and specified expenses. Eligible investments includes life insurance, equity-linked savings schemes (ELSS), Public Provident Fund (PPF), National Savings Certificate (NSC), five-year notified tax-saving bank deposits, five-year post office time deposits, Senior Citizens' Savings Scheme (SCSS), Sukanya Samriddhi Account, Employees' Provident Fund (EPF) etc., while expenses and outflows can include tuition fees, principal repayment of home loan, among others.

One can invest the entire amount of Rs 1.5 lakh in one investment or diversify across more than one. The section 80C cap of Rs 1.5 lakh may not be enough for several taxpayers and many may not be in a position to use it fully and optimally. If the limit gets exhausted involuntarily through a mix of EPF contributions, tuition fees and home loan principal repayments, the additional incentive to save through investments like PPF, ELSS or term life insurance may not be much unless an individual tax payer is financially savvy enough to manage his financial planning properly. For instance, salaried individuals with high basic salary may see a major portion of section 80C get exhausted by the EPF contributions itself. Then there are those taxpayers paying children's tuition fees and/or paying equated monthly installments on a home loan; for such people there could see little room left to make use of the section 80C tax benefits, after claiming for these expenses. So, if the limit is increased, taxpayers would be able to save more tax and plan their finances better.

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