There is a reason to smile for the individual tax payers. Chances are that the FM may increase the standard deduction on taxable income from the next financial year raising the its limit to Rs 1,20,000 from the present Rs 1,00,000 under Section 80C of the Income Tax Act, 1961. This 20 per cent increase will allow a taxpayer to save up to Rs 2,000 in taxes every year.
Under Section 80C, 80CCC and 80CCD of the Income Tax Act, individuals can claim total deduction up to Rs 1,00,000 a year towards life insurance premia, five-year bank deposits, provident fund, superannuation fund, national saving certificates, tuition fees and many other investments like in mutual funds.
The list of savings and investments that qualifies for deduction under Section 80C was expanded in December, 2007 to include five-year post office time deposits and the senior citizens savings scheme. Tax analysts say that a mere deduction of Rs 1,00,000 for such a large number of savings and investment items is grossly inadequate.
However, it is anticipated that the increased investment limit under Section 80C may be allowed only for specified savings instruments like a pension scheme aimed at promoting old-age security.
The insurance industry has been demanding a separate exemption limit of up to Rs 1,00,000 for very long-term investments like pensions and annuity schemes.
The finance, banking and insurance sector in India is on a rise and the awareness among the people is also growing. The per-capita income has also grown in the past years and there has been a major increase in salaries which gives a reasonable amount of money in the hands of the individual taxpayers who are eager to invest their money in banks and take life cover.
The deductions under these sections are to develop the saving habit but in the present context where the salary income of the people has grown considerably and the amount of investment options available, a sum of just Rs 1,00,000 seems inadequate.