Budget 2018 may raise Section 80 (C) investment limit to Rs 2 lakh a year

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Finance minister Arun Jaitley may raise tax breaks offered on money parked in a slew of products including bank fixed deposits, insurance premium and mutual funds from Rs 150,000 to Rs 200,000 a year under the popular “Section 80C” scheme.

The move, if implemented, could be part of a broader strategy to encourage people to save more in financial instruments and wean them away from locking up surplus funds in unproductive physical assets such as gold.

Existing rules had allow individuals to claim tax deductions up to Rs 150,000 under Section 80C of the Income Tax Act for savings in products such as provident fund, national savings certificates (NSC), five-year fixed deposits, repayment of principal amount of home loans, children’s tuition fee, public provident fund, specific mutual funds and life insurance premium.

After the hike in the ceiling it would mean, for instance, if your gross annual income is Rs 10,00,000 and you have invested Rs 200,000 in instruments under the Section 80C during the year, your tax will be calculated on an income of Rs 800,000.

Also Read: Planning to invest in mutual funds? The earlier the better!

The deduction limit under Section 80 (C) has been at the current Rs 1.5 lakh since 2014-15.  Jaitley, in his first budget presented in July 2014-15 had raised the annual investment limit under Section 80 (C) by Rs 50,000 to Rs 1.5 lakh.

In a recent pre-budget meeting with the finance minister, top executives of banks and financial institutions had recommended raising the annual investment limit under Section 80 (C) from the current Rs 1.5 lakh to boost household savings in long-term financial instruments.

India’s gross domestic savings was 33.3 percent in 2015-16. The household sector’s savings stood at 19.2 percent of GDP (in current market prices) during the year.