UPA-II’s first Budget may bring some relief for individual taxpayers. The finance ministry is considering a proposal to hike the Rs 1-lakh limit for tax-deductible investments under Section 80C of the Income Tax Act, 1961 by another Rs 50,000. This would allow individual taxpayers to invest up to Rs 1,50,000 of their earnings in long-term saving products and claim tax deduction. An announcement to this effect is expected to be made in Budget 2009-10.

At present, Section 80C of the I-T Act permits investments of up to Rs 1 lakh in public provident funds, notified pension funds and saving certificates to be exempt from income tax.

“A further increase in the income tax threshold or a re-jig in the income tax slabs may not be possible this year because of revenue constraints. Also, given the need for public investments, increasing the Rs 1-lakh deduction limit will be a good move,” a finance ministry official said.

In last year’s Budget, then finance minister P Chidambaram had increased the threshold for income tax exemption by Rs 40,000 to Rs 1,50,000 and had also re-jigged income tax slabs. The move, though proving popular enough, had significantly eroded government coffers. In 2008-09, personal income tax collections grew just 9.09% to Rs 1,23,967 crore as against Rs 1,18,904 crore a year ago, much lower than the budgeted 16.8%.

According to sources, the proposal to hike the savings limit under Section 80C comes as the government has little fiscal headroom this year to rework the tax slabs or the income tax exemption cap on account of its ballooning fiscal deficit and falling revenue. However, a hike in the 80C limit is also expected to promote more investments in long-term savings which can then be diverted for funding projects like those in the infrastructure sector.

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