New Delhi: Ahead of next year’s Union Budget, tax experts are seeking a major hike in the deduction from income for making investments into pension funds, saying that the existing limit is inadequate to mobilise the kind of money that will be required by taxpayers to get a reasonable pension in the old age.
Under Section 80CCD(1B) of the Income Tax Act, an individual taxpayer is entitled for a deduction of a maximum amount of Rs 50,000 from his income for making investment into the National Pension Saving scheme (NPS).
“I feel this has to be enhanced to Rs 2 lakh,” said Vighneswara Swamy, a professor of finance at the IBS, Hyderabad.
Rs 2 lakh saving investment limit inadequate
Professor Swamy says a large number of middle-class taxpayers feel that the Rs 1.5 lakh saving limit under Section 80C of the Income Tax act is restricting their saving needs.
In order to encourage the saving behaviour, the Government allows a cumulative deduction of Rs 2 lakh from the income of an individual in a year.
Under Section 80C of the Income Tax Act, the income of up to Rs 1.5 lakh in a year is deducted from the income tax for making investment into saving instruments like LIC, PPF, and EPF among others.
Encourage investment in pension schemes
While under Section 80CCD (1B), an individual can avail an additional deduction of up to Rs 50,000 a year from his income over and above the deduction of Rs 1.5 lakh under Section 80C.
Professor Swamy says a 300% hike in the investment limit under Section 80CCD (1B) is necessary.
“This kind of long term investments will definitely help in meeting the savings needs of the country,” he said.
Another tax expert, a Delhi-NCR based chartered accountant, says a significant hike in the relief for pension fund investments will help in meeting the future pension requirements of working-class people.
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“Given the future requirement and inflation rate, Rs 50,000 investment in pension funds in a year is completely inadequate for future pension needs,” he told ETV Bharat.
He, however, says the government may not be able to increase the limit to Rs 2 lakh a year from the existing limit of Rs 50,000 a year straight away.
“Hiking the investment limit under Section 80CCD (1B) to Rs 1 lakh will not be enough and hiking it to Rs 2 lakh a year may be difficult for the government,” he told ETV Bharat. “So the Government should increase the limit to Rs 1.5 lakh a year.”
Scope for tax relief
In response to a question by ETV Bharat in a budget discussion organised by NCR based economic think tank EGROW Foundation, Professor Swamy said despite the decline in revenue collection due to the outbreak of Covid-19 pandemic, finance minister Nirmala Sitharaman has enough room to offer this kind of tax relief to the middle-class taxpayers.
“Contribution of income tax is not big in the government kitty in comparison with the contribution from indirect tax and other taxes. And the government has other avenues for raising taxes rather than solely relying on the personal income tax,” he told the audience in response to ETV Bharat’s question.
