Budget 2018: Finance Minister Arun Jaitley is expected to increase the Section 80C deduction limit in this year's Union Budget as this limit was revised last time in the Budget 2014. It will help common man save more tax.
Budget 2018 is just a couple of weeks away and the most common expectation of the common man is the increase in the Section 80C deduction limit by Finance Minister Arun Jaitley. More because the Section 80C deduction limit was revised last time in the Budget 2014 and any revision in it now will provide some relief to the aam aadmi, reeling under rising inflation and higher prices for a long time.
Tax experts say that each year, the Finance Minister faces the daunting task of balancing the expectations from the common man for tax reliefs and the revenue pressures. “Rebooting growth, ensuring fiscal prudence and restricting tax reliefs to those who need are some priorities of the government. However, taxpayers continue to expect reliefs from the Budget and one of the expectations is to increase the limit of the Section 80C in the Budget 2018. While this section provides relief to taxpayers, it also provides a direction to their investment,” says Saraswathi Kasturirangan, Partner, Deloitte India.
What Section 80C of the Income Tax Act provides
The Section 80C of the Income Tax Act, in fact, provides a deduction for investments made in various savings instruments such as mutual funds, bank deposits, and long-term savings in life insurance plans, pension plans, etc. Expenses such as tuition fees, principal repayment of housing loan etc. are also included.
“The aggregate deduction, however, is limited to Rs 1.5 lakh, which does not provide a significant impetus to investments. The limit was revised last time in Budget 2014, enhancing it from Rs 1 lakh to Rs 1.5 lakh. An additional deduction of Rs 50,000 is permissible for contributions to the National Pension Scheme (NPS), clearly indicating that the government wants to promote NPS. With growing inflation and slowing economy, increasing the limit would enhance the disposable income for individual tax payers,” informs Kasturirangan.
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Everyone is expecting Finance Minister Arun Jaitley to increase the Section 80C deduction limit from Rs 1.5 lakh to at least Rs 2 lakh. If done, it will help taxpayers save more tax.
The impact of increasing the Section 80C limit to Rs 2 lakh (excluding the additional deduction for NPS) is provided below:
Maximum marginal rate of the tax payer
Current tax saving (taxes plus cess)
Proposed tax saving (taxes plus cess)
Additional tax saving (taxes plus cess)
Section 80C limit (Rs)
(Source: Deloitte India)
The above savings would be higher where the individual is subject to surcharge, where the benefit can go up to Rs 17,767.
FM Arun Jaitley could also consider providing focused reliefs by introducing in the Budget 2018 separate limits for investments in mutual funds, NPS, equity investments etc. The investment avenues eligible for deduction may also be broad-based and a separate limit may be introduced for deductions such as life insurance premiums, housing loan repayments etc. Taxpayers expect some sort of rationalization with respect to conditions prescribed for deduction for a few investments. Currently, one has to remain invested in fixed deposits for 5 years to claim deduction; the government may consider reducing this time period.
“One has to remember that increasing these deduction limits in the Union Budget 2018 would reduce the taxable income, which will in effect reduce the tax base. Finance Minister Arun Jaitley, therefore, has to walk the tight rope of balancing various objectives such as widening the tax base and increasing disposable income of tax payers and savings,” says Kasturirangan.