Expected: Alteration of tax slabs under Section 80C of the Income Tax Act

By Vritika Mathur

There are expectations that the government may slightly alter the tax allotments and increase the investment cap under Section 80C of the Income Tax Act to provide relief to taxpayers of the country.

What is Section 80C of the Income Tax Act?

The Parliament of India enacted the Income Tax Act in 1961, which extends to the whole of the country. It allows for administration, levy, collection and recovery of income tax. Among the many sections listing different laws relating to income tax and super tax lies section 80C. Broadly, it relates to the deductions to be made in computing total income. Section 80C further explores deduction in respect to life insurance premia, deferred annuity, contributions to provident fund, subscription to certain equity shares or debentures, and so on.

According to the section – “In computing the total income of an assessee, being an individual or a Hindu undivided family, there shall be deducted, in accordance with and subject to the provisions of this section, the whole of the amount paid or deposited in the previous year, being the aggregate of the sums referred to in sub-section (2), as does not exceed”. In other words, section 80C primarily acts as a vehicle to help reduce one’s tax liability. It allows individuals to increase their savings in order to aid them in meeting their financial goals. Currently, the section permits the deduction from the gross total income of up to Rs. 1.5 lakh per annum. It is expected that the 2018 budget would result in an increase of the investment limit for tax saving from Rs. 1.5 lakh to Rs. 2 lakh or possibly even higher. This increase in limit is expected to take inflation into account.

Why should the limit be increased?

The current cap of Rs. 1.5 lakh may in some cases act as a burden. Many taxpayers may not be in a position to use it optimally. This limit may not be satisfactory for individuals who exhaust their options owing to payments such as Employment Provident Fund (EPF) contributions, children’s tuition fees, home loans and more. Thus an increase in the cap in the 2018 budget would allow individuals and families to plan their finances more efficiently. Additionally, it would also help increase insurance coverage the country and allow for a more stable household after the death of the main earner of the family.

What can be expected from the 2018 budget?

In the last two years, the Modi government has taken two big financial decisions with strong consequences – demonetisation and implementation of GST. After a hard hit by the demonetisation policy as well as the rise in prices due to GST in 2017, the country looks towards the new budget with hopes for tax relief. Much has changed in the tax landscape recently as Finance Minister Arun Jaitley sits bent over the budget of the year. With its ever-changing policies, significant change is not out of question this year. There has been a detectable push from the general public towards the abolishment of personal income tax as it was perceived as dysfunctional by many. The scrapping of this tax may also finally be a step in the direction towards the promise of radical moves in taxation by the government in 2014.

Besides the already expected increase in tax exemption limit, there is also conjecture regarding the ‘housing for all’ push. The government aims to provide affordable housing by using the land in use by loss-making firms. Announcements are also expected in road development, aviation, relooking at allowances, and infrastructure.

Is there a need for reform?

In 2016, the policy of demonetisation left the population scurrying to the nearest ATM’s. However, its main aim was to access a more transparent system allowing for the capture of black money and accountability of the people with regard to taxes. The introduction of GST also primarily focused on attaining a space where people would be more liable to pay their taxes, which would result in tax relief for honest taxpayers. This, in turn, led to a small increase in the number of taxpayers relieving the existing ones off a heavy burden. Despite these measures, the increase was not too significant resulting in a dire need for reduction in the common man’s tax outgo. There is also a need for the payers to be self-compliant than be forced to pay higher taxes.

Politics involved

The Union Budget for 2018-19 is a crucial one for the Narendra Modi-led NDA government. This is the government’s last proper budget before the 2019 elections. It is thus essential for them to meet the demands of the common man in order to sway the public in favour of them. Generally, the budget presented before the elections witnesses a hike in the government’s expenditure. However, this year the government will have to evaluate any and every measure taken owing to the tight fiscal position of the country. After having met with flak following the implementation of the last two major economic policies, Finance Minister Jaitley must do his best to meet the expectations of the hopeful population. The budget will thus reflect humbler approaches keeping the Lok Sabha elections in mind.

With their eye on the 2019 polls, the strategies may revolve around the implementation of attractive tax policies in order to win over the people. Political incentives will surely map the changes in tax policy with the coming of this year’s budget.

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