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The tax deduction limit under Section 80C was last increased in 2014, when the NDA government came to power. Since then, there has been no change in the limit, especially after the transition to the new income tax regime. Some tax experts believe that after the recent election results, the government may reconsider it and possibly increase the limit.

Apart from seeking adjustments in income tax rates, many taxpayers are hoping for an expansion of benefits under Section 80C. Right now, Section 80C allows you to reduce your taxable income by up to ₹1.5 lakh if ​​you invest in certain things or spend money in specific ways. People are hoping that this ₹1.5 lakh limit will be increased.

What is Section 80C?

Section 80C offers tax benefits for specific investments and expenses. You can get tax deductions for investing in instruments such as Public Provident Fund (PPF), Employees Provident Fund (EPF), Equity Linked Savings Scheme (ELSS also known as tax saving mutual funds) and National Pension Scheme (NPS). Though you can invest more in these instruments, the tax deduction benefits are limited to investments up to ₹1.5 lakh. Additionally, tax deductions are available for certain expenses such as paying your children’s school or college fees and insurance premiums, including traditional plans such as endowment or unit linked insurance plans (ULIP).

What about the old tax regime?

The biggest problem with increasing Section 80C tax deduction benefits is that it applies only to those who choose the old tax regime. In 2020, the Finance Minister introduced a new tax regime with lower tax rates but fewer deductions. Since then, the government has been encouraging people to switch to the new regime. In his 2023 interim budget speech, he made the new regime even more attractive by increasing tax exemptions, raising the basic exemption limit, introducing a standard deduction, and reducing the highest surcharge.

However, the recent election results, where the incumbent government did not get a clear majority, indicate that the government may offer some tax benefits to woo the middle class and its alliance partners. Increasing Section 80C deduction has been a popular demand, but the government also needs revenue to solve rural issues. A simpler tax regime is easier for people to manage and gives them the benefit of lower tax rates. Sonu Iyer of EY India believes that both tax regimes will continue for now, but the government is unlikely to increase Section 80C benefits.

Analyzer View

Some experts suggest that the government should consider increasing the tax deduction limit under Section 80C from ₹1.5 lakh to ₹2.5 lakh in Budget 2024. They argue that this adjustment is overdue because inflation over the past decade has eroded the value of the current limit.

They also propose to make these deductions available under the new tax regime, which offers lower tax rates and reduces the need for taxpayers to provide evidence of their investments and expenditure. This change could potentially increase disposable income, encourage savings and boost investment.

Chartered accountant Chetan Chandak thinks differently. He believes the new income tax system with lower tax rates has already made life easier for taxpayers by eliminating the need to provide proof of investments made under Section 80C. This change has also lightened the workload of the tax department. Chandak worries that if the government increases the Section 80C deduction limit to, for example, ₹3 lakh or ₹4 lakh, it could prompt many people to make false claims for these increased deductions even if they have not actually invested that much. This could lead to false claims, making it difficult for the tax department to verify everyone’s returns.

Chartered accountant Mayank Mohanka strongly supports the government’s move towards the new income tax regime. He feels that the government is gradually implementing the changes based on the recommendations, which he considers a well-thought-out decision. Mohanka believes that the new regime with lower tax rates already empowers taxpayers by giving them more control over their investments.

He does not think that the government will increase the tax deduction under Section 80C, because in the new system itself, taxpayers have been given the facility to invest as per their wish. Now all eyes are on July 23, when the Finance Minister will present Budget 2024, to know what changes can be made in it.