TAX DEDUCTION LIMIT MAY BE RAISED BY ₹50K TO ₹2.5 LAKH
BUDGET PLAN The extra deduction will be available only on investments made by taxpayers in government infrastructure projects
NEWDELHI: The finance ministry is considering a proposal to increase the income-tax deduction limit from the current ₹2 lakh to ₹2.5 lakh, said two government officials familiar with the matter. At present, taxpayers get relief under Section 80C, 80CC and 80 CCD of the I-T Act. The deduction is offered for investments made in Provident Fund, Public Provident Fund and life insurance premiums. Tuition fees and home loans also earn relief.
NEW DELHI: The finance ministry is considering giving relief to taxpayers in the form of higher income tax deduction, said two government officials familiar with the developments.
The current relief is ₹2 lakh and discussions are on to increase it to at least ₹2.5 lakh. The extra deduction, however, is likely to be available only on investments made by taxpayers in government infrastructure projects, the officials said.
“Discussions are on to give relief to taxpayers in the form of higher tax deduction. The higher deduction will be for investing in infrastructure projects in the form of bonds or through equitylinked savings schemes ,” said a government official, who asked not to be named. These investment routes are likely to have a lock-in period, he added.
At present, taxpayers get relief under 80 C ,80 CC and 80 CC Do ft he Income Tax Act. The deduction is offered for investments made in provident fund, public provident fund, and life insurance premiums.
Payments made towards tuition fees of children and home loans also earn tax relief. An additional deduction up to ₹50,000 is offered for investment in National Pension System (NPS).
“There is intent to give tax relief to as many taxpayers as possible, but a higher deduction will mean loss of revenue so the exact quantum of the relief will depend on the government’s fiscal elbowroom,” said another government official.
With rising global crude prices putting pressure on the government’s subsidy bill, depressed collections from Goods and Services Tax (GST) in its first year and the need to increase spending in infrastructure, the government has to be cautious with populist measures if the path of fiscal consolidation is to be maintained.
“A higher tax deduction for investment in government infrastructure projects would mean more money will be channel is ed into these projects and in capital markets. Every ₹10,000 increase in the deductions will lead to an additional investment of ₹7,500 crore, if we consider 75 lakh people pay income tax in India ,” said Girish Vanvari, partner and head, KPMG India.
In 2017, the government had provided relief to taxpayers with annual income between ₹2.5 lakh and ₹5 lakh by reducing the rate from 10% to 5%.
Andin2014-15thegovernment had increased the tax deduction from ₹1.5 lakh to ₹2 lakh for investments in NPS.
The government is also working on removing concerns of angel investors putting money in start-ups. It is also likely to liberalise the definition of valuation.
“There has been extensive demand for a tax holiday to angel investors in start-ups for the first few years. Let us see what can be done,” said the second officer quoted above. Angel investors typically invest in seed capital for start-ups and if the valuation of the company’ s shares exceeds the market valuation, it attracts income tax under section 56 (2, VII B). These valuations come under the tax man’ s radar on suspicions of money laundering.
At present, venture capita lists are exempt from this provision. And start-ups that meet the government’s definition as notified by DIPP, can avail a three-year tax holiday in the first seven years of their existence .“In order to avoid disputes and litigation, and to provide a favourable investment environment, it is necessary to carve out an exception from tax issues emanating from the valuations.