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80C May get a Rs 50,000 hike

The Budget may just provide an income tax surprise for the man on the street

There might be some good news waiting round the corner for individual taxpayers. With the markets and the economy showing positive signs of revival and the Congress-led UPA coalition all set to push reforms to boost the economy, there may be forthcoming much-needed relief for the common man as well.

Latest on the block is perhaps the expectation of hiking the Rs 1 lakh limit for tax deductible investments under Section 80C of the Income Tax Act 1961 by another Rs 50,000. If the move comes through, individual taxpayers would then be able to invest up to Rs 1,50,000 of their income in long term saving products and claim tax deduction.

For the purpose, all eyes are set on the unveiling of the Budget, which is scheduled to be tabled by Union Finance Minister Pranab Mukherjee sometime in the first week of next month.

The common man would greatly benefited by the raising of the ceiling as till now, Section 80C of IT Act allows investments of up to Rs 1 lakh in Public Provident Funds, notified funds and saving certificates to be exempted from income tax.

It may be mentioned here that former finance Minister P. Chidambaram, while presenting the Budget last year, had increased the threshold for income tax exemption by Rs 40,000 to Rs 1, 50,000 and had also re-jigged income tax slabs.

The move though was appreciated by one and all, but they drained the government of its coffers. If figures are something to go by, personal income tax collections grew just 9.09% in 2008-09 to Rs 1,23,967 crore as against Rs 1,18,904 crore a year ago, much lower than the budgeted 16.8%.

If insiders are to be believed, the prevailing revenue constraints might prevent any further increase in the income tax threshold or a re-jig in the income tax slabs this year. And increasing the Rs 1 lakh move would any day be good, given the need for public investments.

However sources have an entirely different explanation to give as far as this proposed aspect is concerned. They maintain that the government is left with little fiscal headroom this year to rework the tax slabs or the income tax exemption cap on account of ballooning fiscal deficit and falling revenue., according to a report in Financial Express.

However, a hike in the 80C limit is also expected to promote more investments in long-term savings which can then be diverted for funding projects like those in the infrastructure sector.

Tax experts though are of the opinion that an increase in the Rs 1-lakh cap under Section 80C may have a limited impact as they feel that expansion of Section 80C to promote savings and investments would be an ideal move on part of the government. But this should be done along with a re-jig in the income tax exemption limit, otherwise it would only benefit the higher income groups, they maintained.