Budget 2024: Why is it opportune for FM Nirmala Sitharaman to hike Section 80C deduction ceiling for income taxpayers?

Budget 2024: Many taxpayers choose Section 80C to save tax on their income. However, this benefit is only available to those who opt for the old tax regime. Those who choose the new tax regime are not eligible for this deduction. Section 80C provides income tax benefits of up to ₹1.5 lakh to salaried individuals for investing in income tax saving instruments like the Public Provident Fund (PPF), five-year fixed deposit (FD), ELSS, National Savings Certificate, etc. Personal Finance experts believe Finance Minister Nirmala Sitharaman should hike the 80C deduction ceiling while presenting the first Union Budget of Modi 3.0 govt.

Also Read: Will Finance Minister Nirmala Sitharaman increase income tax exemption limit?

The clamour to increase the limit for Section 80C deductions primarily arises due to several reasons:

1)The current limit of ₹1.5 lakh under Section 80C was set in 2014 when Late Arun Jaitley was the finance minister .With inflation and increased living costs, individuals find it challenging to save enough within this limit while meeting their other financial obligations.

Clear CEO Archit Gupta proposes revising the Section 80C limit, which has stagnated since 2014 despite increasing inflation rates. A revision would aid taxpayers in coping with inflation and encourage savings and investments in vital financial instruments such as ELSS, tax saver FDs, and PPF. This aligns with the broader goal of fostering a financially resilient and prosperous India.

Siddharth Maurya, Founder & Managing Director of Vibhavangal Anukulakara Private Limited, emphasises the urgency for the government to consider increasing the Section 80C limit in the upcoming budget. This overdue adjustment would provide much-needed relief to the middle class, currently burdened by rising prices and inadequate tax exemptions. A higher exemption limit would reduce tax burdens and encourage savings and investments crucial for personal and national financial growth. Additionally, it would channel more funds into critical sectors such as insurance, PF, and ESOPs, thereby deepening financial markets and aligning with real economic conditions.

2) Increasing the limit can incentivize long-term savings and investments, which are crucial for financial security and stability in the future.

A higher limit can promote investments in avenues like the Public Provident Fund (PPF), Equity Linked Savings Schemes (ELSS), National Savings Certificate (NSC), etc., which contribute to capital formation and economic growth.

Ashish Aggarwal, Director at Acube Ventures, said that a higher limit would incentivize investments across diverse sectors such as insurance, life insurance, and infrastructure bonds. It would also address income inequality in an inflationary environment by adjusting thresholds to prevent salaries from rising disproportionately compared to inflation.

He added that, ultimately, such a policy adjustment would demonstrate the government's responsiveness to current economic dynamics and citizens' needs, positioning it as a proactive institution capable of adapting fiscal strategies to benefit the economy and its people.

Income Tax Deductions under Section 80C

Section 80C offers deductions for various investments and expenses:

Public Provident Fund (PPF)

Tuition Fees

Five-year Fixed Deposit

Premium on Life Insurance Policy:

Equity Linked Savings Schemes (ELSS) Mutual Funds:

Repayment of Principal on Housing Loan:

These deductions help taxpayers reduce their taxable income, lowering their overall tax liability.

According to PTI, FM Sitharaman will likely present the Union Budget for 2024-25 in the third week of July. This will be her seventh consecutive budget.

Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.