New Delhi: The Union Budget 2020-21 on February 1 could have some good news for salaried taxpayers as the government is reportedly considering giving tax exemptions of up to Rs 2.5 lakh for savings under the 80 category and carve out a separate section under 80C of the Income Tax Act to provide tax exemptions up to Rs 50,000 for National Savings Certificate (NSC).
Furthermore, the finance ministry is contemplating increasing investment limit under the public provident fund (PPF) to Rs 2.5 lakh from the existing Rs 1.5 lakh per year.
“A proposal to allow tax incentives on the small savings scheme, especially PPF and NSC, is with the finance ministry. If given a go ahead, these would be part of the budget announcement,” according to the Economic Times newspaper which cited an unnamed government familiar with the matter as saying, “These fiscal incentives would put more money in the hands of the savers.”
At present, there is an exemption of Rs 1.5 lakh under section 80C of the Income Tax Act, which includes investments made to the PPF account. NSC investment also comes under the same exception. India’s household sector’s saving declined to 17.2 per cent in 2017-18 from 23.6 per cent of gross domestic product (GDP) in 2011-12. Data for FY19 is not available at present.
It is worth noting that bank deposit, at 27%, is the biggest chunk in the total gross financial savings of households. The government wants to put more money in the hands of the savers in an earnest attempt to boost consumption.
Gautam Mehra, leader, tax and regulatory services, PwC India, told the business daily: “The potential increased savings arising on account of an increase in the limit of PPF by Rs 1 lakh from Rs 1.5 lakh to Rs 2.5 lakh is immense if we consider that there could be over 3 crore individual taxpayers having a gross total income of Rs 5 lakh or more. Compared to other measures around providing tax relief, this one has the advantage of garnering significant personal savings.”
It has been reported that the government was examining several proposals such as trimming personal income tax rates, unveiling a flat tax rate without exemptions, new slabs for those in the highest income brackets to be in the Union Budget 2020-21 to reverse the economic slowdown.