Budget 2020: Tweak Chapter VI-A deductions to give relief to taxpayers

Published: January 17, 2020 12:21:43 AM

Budget 2020-21: The tax break of Rs 1.5 lakh under Section 80C needs to be increased, even as the scope of Section 80D should be widened.

Budget 2020, Union Budget 2020 IndiaUnion Budget 2020 India: The high cost of medical treatment has necessitated health insurance cover. (Illustration: Shyam Kumar Prasad)

By Sandeep Jhunjhunwala

Budget 2020 India: The Union Budget 2020 is expected to spruce up Chapter VI-A, which offers deductions while computing total taxable income and is the key tax saving scheme accorded to taxpayers.

Refurbish 80C

Section 80C, which forms a significant part of Chapter VI-A, provides tax break of up to Rs 1.5 lakh from gross total income of individuals for investments made in Public Provident Fund, National Saving Certificate, Employee Provident Fund, 5-year fixed deposits, life insurance, etc. The ceiling limit of Rs 1.5 lakh applies co-jointly to three sections, i.e., 80C, 80CCC (pension) and 80CCD (New Pension Scheme), which, considering the rising cost of living, is woefully inadequate. Moreover, multiple provisions (with individual caps), are put together under a single section, making it difficult for taxpayers to comprehend and take full advantage of the section.

It is vital that the deduction under Section 80C be simplified. The overall cap, which was last amended in the Budget of 2014, may be increased to Rs 3 lakh so that taxpayers can benefit from lower tax outgo and the government can channelise the public funds towards the desired arenas.

Widen scope of Sections 80D, 80TTA

The high cost of medical treatment has necessitated health insurance cover. Section 80D allows a deduction of money spent on maintaining health and health insurance premium and assumes a great significance in reducing one’s tax outgo. A deduction of up to Rs 25,000 is allowed to an individual for payment of health insurance premium of self/ spouse/ dependent children. An additional deduction of up to Rs 25,000 is permitted for insurance of parents below 60 years of age.

In case of senior citizens, the limit is Rs 50,000 a year. Medical expenditure incurred on a senior citizen for whom no insurance policy has been taken is also allowed to the extent of Rs 50,000. However, this limit of Rs 50,000 is a combined limit for deduction towards such medical expenditure and medical insurance premium. Taking into account the fact that senior citizens, specifically those staying in prime Indian cities, incur much higher amounts on medical treatments that often remain uncovered by insurance, a separate, full deduction of health insurance premium must be allowed, which should be detached from medical expenditure.

Additionally, the scope of Section 80TTA, which provides for deduction of up to `10,000 in respect of interest on savings account with banks, post offices etc., could be enhanced to include ‘interest on term deposits’ also. Individuals refrain from keeping all their funds in savings bank account and prefer to invest in fixed deposits, which yield higher returns.

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Remove disparity in Section 80EEA

In line with the objective of ‘housing for all’, Budget 2019 had brought in Section 80EEA, which entitles a first-time homebuyer, an additional deduction of up to Rs 1.5 lakh for interest paid on home loan borrowed between April 1, 2019 to March 31, 2020 for purchase of a residential house property valued up to Rs 45 lakh. However, unlike other provisions that provide benefits on purchase or construction of house property (like Section 54/ 54F), the deduction under this section is permissible only on acquisition or purchase of house property. Those getting their houses constructed stand at a loss. The government could remove this disparity in by extending the benefit to those getting their houses constructed as well. Further, in order to revive the sluggish real estate industry, the ceiling limit on the stamp duty value of such residential house property of `45 lakh may be raised reasonably, which could bring in an upsurge in the overall housing demand.

The writer is director Nangia Andersen LLP. Inputs from Vasudha Arora

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