Income Tax Return: Is government planning to increase Section 80C deduction limit? Here’s what we know

 

Section 80C of the Income Tax Act, 1961, is one of the most commonly used sections for claiming tax deductions. Under Section 80C individuals can claim deductions for certain investments and expenses. These included investments in pension schemes, PPF and life insurance, among others.   

In light of ongoing discussions about a potential rise in the exemption limit under Section 80C of the Income Tax Act 1961, the Finance Ministry has stated that no such proposal is currently under consideration. The clarification comes at a time when various groups have been demanding to increase the deduction limits under Section 80C for various investments.

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For years, taxpayers and tax professionals have been pressing for a higher Section 80C limit. Even the Institute of Chartered Accountants of India (ICAI) suggested in its pre-Budget 2023 advice that the government should up the PPF deduction limit from Rs 1.5 lakh to at least Rs 3 lakh under Section 80C. However, the government hasn’t raised the limits so far. 

GOVERNMENT’S CLARIFICATION ON INCREASING SECTION 80C LIMIT

Union Minister of State for Finance, Pankaj Chaudhary, recently clarified on the matter responding to a question in Lok Sabha.

In a written reply in the Lok Sabha on July 31, he said, “The government’s stated policy is to simplify the Income-tax Act, 1961, by eliminating exemptions and incentives while concurrently lowering tax rates. Therefore, there’s no proposal to increase the exemption under Section 80C of the Income Tax Act under consideration.”

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His statement came in response to a question about the need to update small savings plans and Section 80C exemptions, considering the changing economic climate.

DEDUCTIONS ALLOWED UNDER SECTION 80C  

Section 80C of the Income Tax Act, 1961, is one of the most commonly used sections for claiming tax deductions. Under Section 80C, individuals can claim deductions for certain investments and expenses. These included investments in pension schemes, PPF and life insurance, among others.   

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Here’s the catch: the total amount claimable under Sections 80C, 80CCC and 80CCD (1) is capped at Rs 1,50,000. However, an extra deduction of Rs 50,000 can be claimed under Section 80CCD for contributions to the NPS.  

The valid investments under Section 80C include ELSS Funds, National Pension Scheme (NPS), Unit-Linked Insurance Plan (ULIP), Tax-Saving Fixed Deposits, Public Provident Fund (PPF), Senior Citizen Savings Scheme (SCSS) and Sukanya Samriddhi Yojana, among others.

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