Union Budget 2024: Anticipations for Section 80C Deduction Limit Increase

Synopsis: Taxpayers are eagerly anticipating an increase in the Section 80C deduction limit in the Union Budget 2024 due to rising living costs and inflation. The current limit of Rs 1.5 lakh has remained unchanged since 2014. Increasing the limit to Rs 3 lakh would offer substantial relief, encourage savings and investments, and align with inflationary trends. Additionally, there is a demand for revising the tax slabs in the Old Tax Regime, which have not seen significant changes since 2015.

Section 80C has become a popular tax-saving tool among individual taxpayers, who are increasingly utilizing eligible investment instruments for tax benefits. This section of the Income Tax Act, 1961, provides deductions on various savings and investments, including LIC, PPF, and employee contributions to RPF/Superannuation Fund. The current maximum deduction limit under Section 80C is Rs 1,50,000 per annum, covering investments like 5-year fixed deposits, ELSS, housing loan principal repayment, life insurance, Sukanya Samriddhi Yojana, and provident fund contributions.

Anticipation of an Increase

There has been a long-standing expectation among taxpayers for an increase in the Section 80C limit due to rising living costs and inflation. Many argue that the practical limit should be raised to Rs 3 lakh to align with current economic conditions. The last adjustment to this limit was made in 2014 by Finance Minister Arun Jaitley. Since then, there have been no further changes.

Mitesh Jain, a partner at Economic Laws Practice, highlighted the need for an increase, stating, "The maximum deduction under Section 80C has been capped at Rs 1.5 lakh since the first budget of the BJP government post-election in 2014. Enhancing the 80C limit would encourage greater savings and investments, provide additional tax relief, and better align with inflationary trends over the past decade."

Revising the Section 80C deduction cap would directly impact an individual's taxable income and tax liability. With rising living costs and salaries, the current limit is quickly exhausted by many taxpayers. Increasing this limit is a key expectation leading up to the Union Budget 2024, as it would offer substantial relief and encourage greater engagement in tax-saving instruments, boosting overall tax compliance and economic activity.

Changes in Tax Slabs

Another major demand is the revision of tax slabs in the Old Tax Regime. Established by former Prime Minister Pranab Mukherjee through the Finance Act of 2013, the basic exemption limit was initially set at Rs 2 lakh and later raised to Rs 2.5 lakh in 2015. Since then, it has remained unchanged. In 2018, the tax rate for the income range between Rs 2.5 and Rs 5 lakh was reduced from 10% to 5%. The interim Finance Act of 2019 introduced a rebate of Rs 12,500 for individuals with a total taxable income up to Rs 5 lakh, eliminating income tax liability for this bracket. However, taxable incomes exceeding Rs 5 lakh result in a tax liability increase of Rs 13,000, inclusive of tax cess.