The government is looking into a proposal to enhance the deduction limit under section 80C of the income tax law. A proposal is under consideration to increase the limit to Rs 2.5 lakh. Also, the government is considering a proposal to allow a deduction up to Rs 50,000 under a separate section for National Savings Certificate (NSC).
Section 80C allows a deduction for investments made in various small savings schemes such as PPF and NSC. An increase in the deduction limit from Rs 1.5 lakh to Rs 2.5 lakh would reduce the tax liability of individuals and increase their disposable incomes.
Also Read: Tax-saving alternatives that can surprise you other than section 80C
The government is likely to encourage public savings in the face of a decline in the household savings rate. India’s household savings rate has declined from 23.6% of GDP in FY 2011-12 to 17.2% in FY 2017-18. Also, since FY 2011-12, the percentage of household savings is around 7% of GDP.
So far, the bank deposits account for the largest share of the total gross financial savings of households at 27%. An enhancement of the limit under section 80C has a direct impact on the tax savings of a household. Apart from relief under section 80C, the government is likely to consider a reduction in the personal tax rate or alteration of income-tax slabs.
For any clarifications/feedback on the topic, please contact the writer at sweta.dugar@cleartax.in
I am a Chartered Accountant by profession. I specialise in personal taxes and corporate income tax matters. I am an avid reader and track developments in financial markets, economy and other market developments.
