Following the election of the NDA government in 2014, the Section 80C tax deduction maximum was raised. The Section 80C restrictions have remained unchanged for years as a consequence of the subsequent transition to the new income tax structure. According to some tax experts, the outcome of the most recent election may just encourage the government to reconsider.
One of the main demands made by individual taxpayers is an increase in the advantages of the Section 80C tax deduction, apart from a modification of income-tax slab rates. Your taxable income would decrease as a result of the Section 80C tax deduction if you invest in a variety of securities or make purchases within a certain number of categories, up to a maximum of Rs 1.5 lakh. On the street, they anticipate that this restriction will be raised.
The previous review was conducted by the NDA administration in 2014. The deductions under Section 80C have not changed since then.
Section 80C: What is it?
Two goals are served by Section 80C: investments and expenditures in certain categories. Public Provident Funds (PPF), Employee's Provident Funds (EPF), Equity-Linked Savings Schemes (ELSS; often referred to as tax-saving mutual funds), National Pension Plans, and so forth are among the financial instruments that qualify for Section 80C tax reduction advantages. Although you may invest more in any of these instruments, only investments up to Rs 1.5 lakh would qualify for the Section 80C tax reduction.
You may also deduct taxes from your purchases if you make specific purchases. For example, you may pay for your kids' education or college tuition, as well as their insurance premiums, via unit-linked insurance plans or more conventional plans like endowments.
But that tax system is outdated.
The fact that Section 80C tax deduction advantages are restricted to those who want to use the previous tax system is the main obstacle to increasing them. The government has been eager to promote the new tax regime ever since Finance Minister Nirmala Sitharaman unveiled it in her 2020 budget statement. The new tax regime offers relief by imposing lower income tax rates and comes with fewer tax deductions. Sitharaman further encouraged the new income-tax system in her interim budget address of 2023 by raising the tax refund, raising the basic exemption limit, establishing the standard deduction, and lowering the maximum surcharge that was in effect at the time. However, the recent results of the Central Government election, in which the Bhartiya Janta Party led by Narendra Modi failed to secure a clear majority, suggest that the government may simply announce some tax breaks to appease the middle class and some of its coalition partners—something it desperately needs right now. In addition to lower income tax rates, there has been a need for higher tax deductions such as Section 80C.
"We have a tendency to think that in order for the government to deal with some of its rural challenges, it has to have money. Additionally, a straightforward system facilitates the lives of average citizens, who stand to gain from the reduced income-tax rates provided by the new system. As per Sonu Iyer, Partner, People Advisory Services (Tax), EY India, "I think the government might oppose any improvement in Section 80C, but the dual regime would last for a little longer than usual."
fresh obsessions
According to some tax experts, the post-election environment has altered the central equation, necessitating more accommodation from the government. However, chartered accountant Suresh Surana of Mumbai says that's not the sole explanation.
"Budget 2024 should provide for raising the limit of 80C deduction from Rs 1.50 lakhs to Rs 2.50 lakhs, given the necessity to account for inflation over the last ten years," Surana argues. Additionally, he says that the budget should take the decline in the savings rate into account. "In March 2023, the gross savings rate in India dropped to 30.2 percent from 31.2 percent in March 2022," he continues. As it "would offer taxpayers flexibility in claiming deductions coordinated with their chosen tax structure and could potentially lead to more disposable incomes for the taxpayers, stimulating both savings as well as investment," Surana believes that the benefits of the Section 80C tax deduction should be made available under the new tax regime.
Not everyone is persuaded. In addition to providing reduced tax rates for taxpayers, the new income tax system eliminates the compliance burden, which is the need to provide documentation proving your Section 80 investments and expenditures, according to chartered accountant Chetan Chandak. As more and more individuals transition to the new income-tax system, even the income-tax department is relieved. On the other hand, many taxpayers would be tempted to take advantage of this if the Section 80C tax deduction limitations were raised to, say, Rs 3 lakh or Rs 4 lakh. bogus claims by those who do not invest but yet make bogus deduction claims would also have a side consequence, according to Chandak. He continues, saying that as a result, the income-tax department has to examine and validate a higher number of returns than normal.
On the other hand, rising housing costs and equivalent monthly installments over time may support an increase in Section 80C tax deduction advantages. Or even Section 24, which allows a deduction of up to Rs 2 lakh for payments made toward the interest portion of a house loan. An further factor that might be driving Section 80C could be the rise in small investor stock market investments during the last two to three years. Fixed-income securities, such as tax-saving bank fixed deposits and small-saving instruments, make up a significant amount of the qualifying investments under Section 80C.
The government should continue along this route as it has been heading in the direction of the new income-tax system, according to chartered accountant Mayank Mohanka of Noida. "The administration has been gradually and piecemeal incorporating the direct tax committee's suggestions into the present income-tax rules. This choice has been carefully considered. According to Mohanka, "the new regime is a significant change." He doesn't think that Section 80C tax deductions will be increased since, in addition to lowering tax rates, the new system allows many taxpayers greater control over their money, allowing them to invest anywhere they want.
Now, everyone will be watching July 23, when the Finance Minister will unveil Budget 2024.
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