Presently the investments and expenditures up to a combined limit of Rs 1 lakh get exemptions under Sections 80C, 80CC and 80CCC of the Income-Tax Act.
The announcement to hike tax savings limit was made by Finance Minister Arun Jaitley in his speech while presenting the Union Budget, 2014-15.
There have been demands from bankers and insurers to hike the tax exemption limit from Rs 1 lakh per annum to encourage household savings.
The savings rate has come down from over 38 per cent of GDP in 2008 to 30 per cent in 2012-13.
The hike in the exemption limit would provide much needed relief to the salary earners who are reeling under the impact of high inflation.
The Direct Taxes Code (DTC) too had recommended that the combined ceiling for investments and expenditures be raised to Rs 1.5 lakh per annum.
The financial instruments which enjoy exemption include life insurance premium, public provident fund, employees provident fund, National Savings Certificates, repayment of capital on home loan, equity linked saving schemes sold by mutual funds and bank FDs of five year maturity.
Kuldip Kumar, Executive Director - Tax & Regulatory, PwC India:
Basic tax exemption limit for individuals and senior citizens raised by Rs 50,000, resulting in tax saving of Rs 5150/- for all tax payers. Enhancement of 80C limit to 1.5 lacs will help the tax payers to save more taxes. Individuals earning upto Rs 400,000 and making investment of 1.5 lacs under 80C will go out of tax net. Enhancing the PPF limit from 1 lac to 1.5 lacs to help the individuals to save more in tax free income investments.