Budget 2020 Expectations: With the Union Budget just a couple of weeks away, all eyes are now set on Finance Minister Nirmala Sitharaman’s second budget which is set to be presented on February 1. As the economy is going through some sort of crisis for some time now, there are expectations galore that the FM will do something for everyone, particularly the common man. Taxpayers, particularly salaried, are hoping for some tax sops which will put more money in their pocket. While some taxpayers and tax experts want some changes in the income tax slabs and rates, others are pitching for a hike in the Section 80C deduction limit as the current limit of Rs 150,000 is not sufficient to meet the aam aadmi’s requirements.
However, before taking a look at their expectations, let us see what is Section 80C of the Income Tax Act.
What is Section 80C?
If your tax deductible expenditure or investment falls under the Section 80C of the Income Tax Act, 1961, then you will save the tax under this section. It allows you to save tax by making investments or expenditures under various categories.
At present, the deduction under Section 80C is available up to Rs 150,000. The eligible investments include life insurance policies, Public Provident Fund (PPF), National Savings Certificate (NSC), five-year notified tax-saving bank deposits and many more. One can invest the entire amount of Rs 1.5 lakh in one investment only or in more than one.
Expectations from Budget 2020
Tax experts say that Section 80C allows deduction not only in respect of investments, but also in respect of expenses which we generally incur in our day to day lives, such as tuition fees, housing loan principal repayment, etc. However, "the existing limit for deduction, i.e., Rs 150,000, leaves very little scope for the taxpayers to make further investments. Thus, various investment schemes have been losing their sheen. With an increase in inflation rate, there is need for an increase in the threshold limit of Section 80C deduction too. It is recommended that the deduction under Section 80C should be increased to the minimum of Rs 200,000," says Naveen Wadhwa, DGM, Taxmann.
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Practically, the overall limit of Rs 1,50,000 does not offer any major benefit in real terms as various investments are clubbed under one single provision. "The overall limit of Rs 150,000 provided under this section seems to be unsatisfactory. This limit gets drained in just one or two investment categories and then the common man has to pay taxes on the rest of his income," says CA Abhishek Soni, Founder, tax2win.in.
For instance, for a taxpayer who is paying children’s tuition fees and equated monthly installments (EMI) on a home loan, then considering the current inflation, the limit of Rs 1.5 lakh under this section is not sufficient. Moreover, "even high-salaried taxpayers feel like getting no benefit as a major portion of Section 80C gets drained by the PF contribution itself. So, we expect that in the Budget 2020 the limit of Section 80C will get hiked from Rs 1.5 lakh to Rs 2.5 lakh. This will allow individuals to save more," adds Soni.
Thus, if the threshold limit of Section 80C is increased by the FM in the Budget 2020, this will not only boost investments, but also provide a majority of taxpayers the much-needed relief.