Budget 2020: More income tax exemptions? How Modi government can rejig Section 80C

Budget 2020: We are less than a week away from Union Budget 2020 (#BUDGET2020ZEE) and most salaried employees would be hoping for the Modi government to provide relief by announcing a change in the income tax benefits extended under Section 80C. Similar demands were made before last year's budget as well but the government had opted for a rebate for people with income up to Rs 5 lakh, instead. This year, however, bigger announcements can be expected.

The government should re-introduce deduction in respect to infra bonds, increase exemption under section 80C and also give more benefits as Standard deduction, believes Divya Baweja, Partner, Deloitte India. Baweja explained how the government can change section 80C in the upcoming budget.

Infra bonds

She said that finance minister Nirmala Sitharaman should consider re-introduction of the deduction in respect of subscription to Infrastructure bonds by individuals.

"This will also help the government to mobilise funds for investment in infra sector and thereby boost the economy. It is recommended that the benefit under section 80CCF be reintroduced to promote raising of funds for infrastructure development with a maximum deduction upto INR 1 Lakh," she said.

Additional saving through increase in 80C limit

"The deduction under Section 80C has remained static since Finance Act, 2014. The section is meant to provide relief to individuals for specified investments and expenditure, while at the same time channelize investments into areas that support the economy. However, over the years, the scope of this deduction has become too wide as compared to its very modest limit such as – life insurance premium, deferred annuity, contributions to provident fund, subscription to certain equity shares or debentures, tuition fees, principal repayment of housing loan etc," Baweja said.

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She added that an increase in these limits is expected with the increased cost of living. As of now, a taxpayer can save up to Rs 1.5 lakh per year under this section.

This generally gets exhausted through Provident Fund (PF) contributions, tuition fee expenses, payment of housing loan principal and life insurance premium. As such, the exemption limit under Section 80C can be enhanced from INR 150,000 to INR 250,000 which would provide tax savings in the range of INR 20,000 to INR 30,000 depending upon the level of income," she said.

Baweja also suggested a separate deduction for expenses such as children’s tuition fees, life insurance premium and housing loan principal payments as compared to the investment-oriented items in that scope.

Standard Deduction

Citing the data point from Budget 2018 which showed that  individual business taxpayers (including professionals) paid an average tax of only Rs 25,753 each as compared to Rs 76,306 from the salaried taxpayer, Baweja demanded an increase in standard deduction.

"There is a need to increase the standard deduction of INR 50,000 to atleast INR 100,000 to take care of the salaried employees increasing expenses like increase in cost of the petrol/diesel, cost of food, medical expenditure etc," she said.