Budget 2023: Is it time to declutter Section 80C of Income Tax Act?

Changes to section 80C could help people in better tax planning.

The clamour for removing some of the deductions from Section 80C of the Income Tax Act is increasing as experts feel that it has become cluttered and not very practical for tax planning.

Experts feel that the section needs a review as the last one happened in 2014 and incomes have surged since then along with other contributions like provident fund. This has shrunk the space within 80C.

“The 80C bucket is cluttered now – there’s housing loan principal repaid, tax-saver fixed deposits, employees’ provident fund and so on, along with life insurance premium paid. Salaries have increased over the years and alongside, so have employees’ EPF contributions. This consumes a large part of the 80C limit,” said Vighnesh Shahane, MD and CEO of Ageas Federal Life Insurance.

Section 80C that allows tax breaks up to Rs 1.5 lakh is one of the primary reasons why people go for investments like housing and life cover.

Insurance experts feel that the limit of Section 80C can be increased to at least Rs 2 lakh so as to attract people to buy term insurance covers for the financial safety of their families.

Not just that, even housing sector has long clamoured for increasing the limit of Section 80C as this will further boost the realty sector.

A separate section under 80C for the housing principal repayment is also something that has long been on the list of suggestions by realty sector.

Taxpayers can claim Rs 1.5 lakh as deductions for housing loan repayment under section 80C along with Rs 2 lakh for interest payment under section 24.

Equity-linked saving scheme (ELSS) saw a huge bump up in investments when its limit was increased to Rs 1.5 lakh under 80C.

Any changes on the 80C front will be a big tax reform and push more people towards tax planning.

Even though the fiscal wiggle room available to the government isn’t much, these slight changes could go a long way in boosting compliance.