Union Budget 2020: The Central government is reportedly considering a proposal to create a new segment in the bouquet of tax saving investment products exempted under Section 80C of the Income Tax Act. In the upcoming budget, it is expected that Finance Minister Nirmala Sitharaman may announce a separate segment under Section 80C to provide tax exemption for investment up to Rs 50,000 in National Savings Certificates (NSC).
It is also expected that the finance ministry may raise the Section 80C exemption limit to Rs 2.5 lakh from the current 1.5 lakh per year, apart from rationalising the income tax slab.
At present, deposits up to Rs 1.5 lakh in NSC qualifies for deduction under Section 80C. However, all taxpayers can’t exhaust the Section 80C limit by depositing in NSC only. Most of the taxpayers are salaried individuals. Their contributions towards Provident Fund and Life Insurance Policy are also counted for claiming Section 80C benefit. So, if the government creates a separate segment to allow tax exemptions up to Rs 50,000, NSC will likely become a compelling option for taxpayers to save more for several reasons:
- First, the maturity period of NSC is five years. For tax-saving purpose, another five-year option for common taxpayers is five-year tax-saving fixed deposit scheme offered by banks and post office. If there is a separate segment for NSC under Section 80C, tax-payers will be more inclined to park their savings in this scheme.
- Second, NSC currently offers a better interest rate than five-year FDs of banks and post office.
- Third, NSC is one of the small savings schemes like PPF, which comes with a sovereign guarantee. Bank FDs don’t enjoy this benefit.
How much you can get with NSC
NSC is currently offering 7.9 per cent interest, compounded annually. A deposit of Rs 10,000 in the scheme today will return Rs 14,625 after maturity. Similarly, a deposit of Rs 25,000 can return Rs 36,563 and Rs 50,000 will grow to Rs 73,126 after five years.
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Why govt may raise Section 80C limit, change tax slab
Experts believe that raising Section 80C limit and rationalising tax slab will put more money in the hands of people, allowing taxpayers to save more, and also boost India’s falling household savings.
Divya Baweja, Partner Deloitte Haskins& Sells LLP, told FE Online that raising 80C limit and tax-slab change are long-pending demands. Both will help the government realise its big goals like insurance for all, housing for all etc.
"Section 80C limit today is Rs 1.5 lakh. It has been there for years. There has always been a demand that this number should go up," said Baweja.
Explaining why the government may like to raise Section 80C limit, Baweja said: "Looking at the whole circle of economy, there are two objectives the government should want to achieve. First, ensure there is more money in the market. Second, at the same time to ensure people start saving more. To achieve these, a rejig in 80C limit and change in tax-slab are required."