Budget 2018 may increase Section 80C tax deduction limit to Rs 2 lakh a year

On Budget 2018, Finance Minister Arun Jaitley may increase Section 80C tax deduction limit to Rs 2 lakh a year from Rs 1,50,000. The tax exemption is for products including bank fixed deposits, insurance premium, and mutual funds.

The increment in limit could be a part of a strategy to encourage people to save more money in financial instruments. It also keeps away people from locking up their money in unproductive physical assets such as gold.

Currently, a taxpayer claims a tax deduction up to Rs 1,50,000 under Section 80C of the Income Tax Act. The government will extend the tax deduction limit for long-term saving schemes such as Provident Fund, National Savings Certificates, Fixed Deposits, Home Loans, Children’s Education, Public Provident Fund, Mutual Funds and Life Insurance Premium.

The increment in tax deduction limit means if your annual income is Rs 12,00,000 and you have invested Rs. 2,00,000 in financial instruments under Section 80C during the year. You have to pay income tax on the rest amount of Rs. 10,00,000.

In 2014-15, when Arun Jaitley presented his first budget, he raised the annual investment limit from 50,000 to Rs. 1,00,000.