Budget 2024: 10 years since last increase, will FM up Section 80C limit?

When the current National Democratic Alliance government first came to power in 2014, it increased the limit of deduction allowed under Section 80C of the Income Tax Act, 1961 from ₹1 lakh to ₹1.5 lakh. The limit, however, has remained there since.

As Finance Minister Nirmala Sitharaman presents the first Budget of the newly formed government, the middle class will hope that the limit in Section 80C will be relaxed.

Section 80C provides a list of instruments using which one can save income tax. These include a slew of investment vehicles such as equity linked saving schemes (ELSS), public provident fund, unit-linked insurance plan (ULIP), national savings certificate (NSC).

Section 80C also allows certain kinds of spending to be made tax deductible: like payment of life insurance premium or children’s tuition fee.

Any amount invested in an 80C scheme can be removed while calculating income, making an investment of ₹1.5 lakh providing a total tax benefit of ₹46,300 if an individual is in the highest 30% tax bracket.

Could Section 80C limit be hiked in Budget 2024?

Opinions are mixed on whether an increase in the limit will come through.

India’s consumer inflation has averaged 5.1% over the past 10 years. This means that anything that cost ₹1 lakh then costs ₹1.64 lakh, implying a fall in purchasing power.

Despite the inflation, the limit has remain unchanged over the past 10 years, and should be revised to ₹2 lakh, Rajarshi Dasgupta, Executive Director - Tax, AQUILAW, told Business Today.

The limit increase will help taxpayers combat inflation and will encourage them to invest in investment vehicles, Dasgupta said. “These measures are in line with the overarching objective of cultivating a financially robust and thriving India,” he added.

India’s gross savings rate has fallen from 31.2% in March 2022 to 30.2% in March 2023. An increase in Section 80C limit could encourage more Indians to save.

At the same time, the government has been keen to incentivise the new tax regime, which has done away with the benefit of Section 80C.

The new tax regime offers a lower tax rate but does away with most deductions and benefits that are still offered under the old tax regime.

“In my opinion, the government might resist any enhancement in Section 80C,” Sonu Iyer, Partner, People Advisory Services (Tax), EY India, told Moneycontrol, pointing out that a “simple regime makes life easier for the common man”.