Section 80C has remained a favored tax-saving mechanism among taxpayers within the old tax regime, having been introduced in 2014 by then-finance minister Arun Jaitley. The upcoming Budget for 2024, expected to be presented by Finance Minister Nirmala Sitharaman on July 23 or 24, might bring tax relief measures aimed at boosting consumption, according to experts.
Media reports indicate that the government might increase the tax exemption threshold under the new tax regime from Rs 3 lakh to Rs 5 lakh. Additionally, there is speculation that the tax slabs under the old income tax regime might be rationalized. These changes aim to provide tax relief to certain taxpayers and stimulate middle-class consumption, thereby supporting GDP growth.
However, significant tax relief measures may be limited due to the government's focus on consolidating the fiscal deficit. The government aims to maintain a fiscal deficit target of 5.1% of the gross domestic product for the current financial year.
Taxpayers have long hoped for an increase in the Section 80C limit, especially as this year marks a decade since it was last adjusted. Currently, individuals can claim a deduction of up to Rs 1.5 lakh for the fiscal year 2024-25 if they opt for the old tax regime. This benefit, introduced by Arun Jaitley in 2014, has not been updated since.
Mitesh Jain, Partner at Economic Laws Practice, stated, "The maximum deduction under Section 80C has been capped at Rs 1.5 lakhs since the first budget of the BJP government post-election in 2014." With increasing awareness, investments in eligible instruments under Section 80C have grown significantly.
Expenses on items like life insurance premiums, tuition fees, and home loan principal repayments have risen, often reaching the Rs 1.5 lakh limit. Taxpayers have been anticipating an increase in this limit across several budgets, particularly with rising living costs and inflation outpacing the incremental changes in Section 80C.
"Enhancing the 80C limit would encourage greater savings and investments, provide additional tax relief, and better align with inflationary trends over the past decade. Due to rising inflation and the growing cost of living, there's a growing public demand for this limit to be increased to at least Rs 2 – 2.5 lakhs," Jain added.
There is a possibility that the 80C deduction limit might be increased from Rs 1.5 lakh to Rs 2 lakh under the old tax regime in the upcoming budget. The Finance Minister began pre-budget discussions with industry bodies on June 20, and experts anticipate that the government will seek to balance boosting growth, managing inflation, and fulfilling coalition promises.
