Ceiling for claiming deduction under Section 80C should be increased to Rs. 2.50 lakh
A recently released Deloitte Pre-Budget Expectations Survey Report reflects what has been widely expected as an easing of income tax limits in Budget 2017. According to the survey, basic income tax exemption should be increased to Rs 5 lakh per year and the ceiling for claiming deduction under Section 80C should be increased to Rs. 2.50 lakh.
While almost all respondents in the survey want the I-T exemption limit increased substantially, 58 percent of them wanted the ceiling to be increased to Rs 5 lakh. As many as 71 percent respondents want the limit of the Section 80C to be increased to Rs. 2.50 lakh from Rs. 1.50 lakh currently.
Many reports in December said that the income tax slabs will be increased to at least Rs 4 lakh. However, a government spokesperson had denied that the income tax would be eased and called the reports baseless. After demonetisation, which has hit many industries and slowed economic growth to 7.1 percent in the most recent quarter, people are hoping to get some respite from the coming Budget.
Increasing the income tax ceiling would give consumers more money to spend, thereby increasing demand.
“The increase in the slab limit will kick-start savings, which will ultimately lead to increase in investment in the system,” stated the Pre-Budget Expectations Survey Report by Deloitte.
The existing deduction limit is low as compared to increase in income levels and inflation. “Increase in limit will help channelise household savings into productive avenues such as insurance, provident fund, equity and the like which will in turn help boost infrastructure spending and job creation,” the survey said.
It also added that the National Pension Scheme (NPS) should receive tax treatment parity with the Provident Fund (PF). As many as 88 percent of the respondents wanted full tax exemption for withdrawal of NPS. Withdrawals from the NPS are taxed up to 60 percent.
The PF, which is under Exempt – Exempt – Exempt (EEE) regime, is not taxed on withdrawal.
“The government has positioned NPS as an alternative to PF. Therefore, to bring parity and incentivise employees to be part of NPS, it must be brought under the EEE regime,” the report added.
In the survey, Deloitte said that the government is targeting boost in infrastructure spending and requires long-term funds for that. “Hence, it is an apt time to reintroduce deduction for investment in long-term infrastructure bonds as it will provide an additional avenue for individuals to make an investment and save taxes,” the survey suggested.
Respondents also added that deduction for investment in infrastructure bonds should be introduced with a Rs. 50,000 limit