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Budget 2020 should increase tax break under section 80C

Section 80C is at the core of tax-savings for all categories of individuals. Whether the individual is a government employee, privately employed or for that matter working in an NGO, use the section 80C basket to save on tax.

Last Updated: Jan 30, 2020, 12.31 PM IST
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Budget should up section 80C tax break
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By Nitin Baijal

The finance minister will be presenting Budget 2020 on February 1 and as always, individual taxpayers are waiting with bated breath. Though the FM has already provided rate cuts to corporate taxpayers, individual taxpayers are yet to find their share of joy and hence have high hopes.

While expectations typically have no end to them, one of the common expectations which has been at the top of the wishlist for a few years now is increasing the exemption limit under 80C.

What is section 80C of Income-tax Act?
Section 80C is at the core of tax-saving for all categories of individuals. Whether the individual is a government employee, privately employed or for that matter working in an NGO, use the section 80C basket to save on tax.
Under this section, an individual or a Hindu undivided family (HUF), is allowed deduction from gross total income with respect to the sum paid or deposited in certain specified schemes and specific expenditures.

Popular investments eligible for deduction include life insurance premia, contributions to Employees' Provident Fund (EPF), payment of tuition fees, repayment of principal amount of housing loans, Public Provident Fund (PPF), and so on.

When was the section 80C re-introduced?
Section 80C was reintroduced in Budget 2005 as a replacement to section 88 with the inherent intention of moving from an EEE (exempt at contribution, exempt on accrual, and exempt on withdrawal) regime to an EET (exempt at contribution, exempt on accrual, and taxed on withdrawal) one which is generally the preferred system in developed economies.

As per the memorandum to the Finance Bill 2005, the system of providing tax benefit under section 88 for investments in saving products was inconsistent with the EET method and was therefore, replaced by inserting section 80C of the Act. While the efforts of the authorities on moving to an EET system of saving might not have yielded any gains (for example, NPS), stagnancy, and inflation might render the section less useful in the years to come.

Why it is time to take a re-look at section 80C
It is pertinent to note that the limit of deduction under section 80C, was last increased from Rs 1 lakh to Rs 1.5 lakh in Budget 2014; which is almost five years ago. Accordingly, expanding the horizon and limits of the 80C deduction is the need of the hour.

The overall exemption limit under section 80C should at least be enhanced to Rs 3 lakh, from the current Rs 1.5 lakh. Similarly, while increasing the limits under 80C, concurrently the limit of investment under PPF may also be increased. The tax policy makers in sync with PPF authorities, can work at rejigging the limit of Rs 1.5 lakh per individual including minor children, and providing deduction for the additional investment under section 80C.

Last but not the least, robust infrastructure is the backbone of any country and for the economy to grow, the same needs to be strong. The past budgets have laid much emphasis on improving the infrastructure sector. Accordingly, the authorities may be re-considering on bringing in tax break for investment in infrastructure bonds under the overall ceiling of 80C, if not reintroducing the tax break for these bonds as a separate section. This was earlier introduced for assessment year starting April 2011 under section 80CCF, but discontinued later.

While changes to 80C tops the list, the expectation is that the additional benefit for employees' contribution to NPS of Rs 50,000, provided over and above the current limit of 80C, should continue.

Whether the FM will tweak the critical section 80C will remain a mystery until the Budget day, and as always we can only hope for the best. However, with the economy on a downslide now would be the ripe time for authorities to consider the change.

(The author is Director, Deloitte India)
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(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

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