In addition, the government is also considering additional deductions for investment in long-term infrastructure bonds with an objective to channelise public savings into the financing of infrastructure, said an official privy to the development.
Currently, under Section 80D of the Income Tax Act, deduction of up to Rs 15,000 is allowed for health insurance of tax payers or their spouse and dependent children, or any contribution made to the Central government health scheme. Further, additional deduction up to Rs 15,000 is allowed for insurance on health of parents.
While raising the exemption limit is difficult in the current economic situation, the government is considering raising the deduction limit available under Section 80D. It may be raised from Rs 15,000 to at least Rs 25,000 for the taxpayer, the official said.
The government may introduce a scheme on the lines of the additional deduction of Rs 20,000 given for investment in long-term infrastructure bonds in Budget 2010-11.
However, it is unlikely that the exemption limit of Rs 1 lakh under Section 80C would be enhanced in the Budget 2014-15 given the uphill task of fiscal consolidation facing the government.
All the same, The government may set up a committee to explore options of increasing the exemption limit from Rs 1 lakh to Rs 1.50 lakh, and an announcement to this effect may be made in the Budget, the official said.
The source added that with the economy growing sub-5 per cent for the second consecutive year in FY14, the tax revenue target of 18 per cent pegged in the Interim Budget is a tall order for the tax department and in the full Budget, it is expected to be revised downwards.
A committee would be set up to study if the exemption limit can be enhanced without hitting the exchequer much, the source said.
The Interim Budget had pegged the tax collection at 19 per cent on the back of expected growth recovery. However, tax department officials are of the view that with no immediate relief in sight for the economy, it is unlikely that lofty revenue expectations can be met.
According to the revenue foregone statement presented in the Budget 2013-14, the government projected a loss of Rs 30,875 crore in FY13 due to Section 80C exemptions.