Will Section 80C Deduction Limit Finally Increase?

• Budget 2024 is expected to offer tax breaks to boost consumption, with a potential increase in the tax exemption threshold under the new tax regime from ₹3 lakhs to ₹5 lakhs.
• Section 80C deduction limit is under scrutiny, with hopes for an increase from ₹1.5 lakhs in Budget 2025.
• Reasons for increasing the Section 80C limit in Budget 2024 include rising living costs and inflation.
• Potential benefits of a higher Section 80C limit: reduced tax burden, increased savings, easier homeownership, and greater financial security.

Taxpayers across India are eagerly waiting for the Union Budget 2024, scheduled for presentation by Finance Minister Nirmala Sitharaman on July 23rd or 24th. Experts suggest the government might offer tax breaks to boost consumption and economic growth.

One potential measure gaining traction is an increase in the tax exemption threshold under the new tax regime. Media reports suggest this could rise from ₹3 lakhs to ₹5 lakhs. Additionally, tax slabs under the old regime might be rationalised. These changes aim to provide tax relief to specific taxpayers and stimulate middle-class spending, further propelling GDP growth.

Focus on Section 80C of Income Tax Act Deduction

However, the government's focus on fiscal deficit consolidation could limit major tax relief measures. Their target is to maintain a deficit of 5.1% of GDP for the current financial year.A key area of taxpayer interest lies in the Section 80C deduction limit under the Income Tax Act, 1961 (Sec 80C of Income Tax Act 1961). This limit hasn't been revised in a decade since it was raised to ₹1.5 lakh by then-finance minister Arun Jaitley in 2014. Also Read: Budget 2024: What Is a Budget? Why Is It Important?

• Popularity of Section 80C of Income Tax Act: This deduction remains a popular tax-saving option, particularly for those under the old tax regime. It allows individuals to reduce their taxable income, thereby lowering their tax liability .
• Growing Awareness, Increased Investments: Growing awareness of tax benefits has led to increased investments in eligible instruments under Sec 80C of Income Tax Act 1961. These instruments include:
• Equity Linked Savings Schemes (ELSS): Mutual fund schemes that invest in a combination of stocks and bonds .
• Public Provident Fund (PPF): A long-term savings scheme backed by the government, offering attractive interest rates and tax benefits.
• Unit Linked Insurance Plans (ULIPs): Life insurance policies that combine investment and insurance benefits, with premiums qualifying for Sec 80C deduction.
• Employee Provident Fund (EPF): A retirement savings scheme for salaried individuals, where contributions from both employee and employer qualify for deduction.
• Rising Costs Outpace Limit: These rising costs, such as education expenses and home loan EMIs, often cause individuals to max out the current ₹1.5 lakh limit.

Also Read : Budget 2024: Higher Standard Deduction in New Tax Regime

Taxpayers have long expressed their desire for an increase in the Section 80C deduction limit in Budget 2024. Rising living costs and inflation have significantly outpaced adjustments made to Sec 80C. Experts believe raising the limit would:

• Encourage Savings and Investments: A higher limit would allow individuals to invest more towards their financial goals, like retirement planning or children's education.
• Provide Additional Tax Relief: A larger deduction translates to a lower tax burden, leaving individuals with more disposable income.
• Better Reflect Inflation Trends: Raising the limit would help account for the rising cost of living and ensure individuals can continue to benefit from tax deductions.

Public demand is strong, with many advocating for an increase to at least ₹2 lakhs to ₹2.5 lakhs.

There's speculation that the upcoming Budget 2024 might see the Section 80C deduction limit for the old tax regime rise to ₹3 lakhs. This potential change is seen as a way to address rising inflation and living costs.

Balancing Growth and Tax Relief

Pre-budget talks between the Finance Minister and industry bodies began in June 2024. Experts anticipate the government will strive for a balance between stimulating economic growth, controlling inflation, and fulfilling promises made during the election. Also Read: Budget 2024: Top 4 Expectations From Finance Minister Nirmala Sitharaman

Section 80C of the Income Tax Act allows individuals to claim a maximum deduction of ₹1.5 lakh on their taxable income for the fiscal year 2024-25 if they choose the old tax regime. This benefit isn't available under the new tax regime .

Claiming the Deduction under Section 80C

To claim a deduction under Section 80C of Income Tax Act 1961, taxpayers must invest in designated expenses throughout the year. Once income is determined, the deduction is claimed on the Income Tax Return (ITR) form. This deduction is subtracted from gross taxable income to arrive at net taxable income, which is then used to calculate tax liability.You can claim your deductions and file your taxes in a hassle free manner with Aditya Birla Capital 's EZTax which allows self-filling as well as offers expert assistance in filing taxes. Also Read: