Time to tweak Section 80-C

Section 80-C consists of a variety of contributions including insurance, provident funds, home loan principal, tuition fees etc. It is out of touch with reality…

After a long hiatus, the previous budget raised the exemption limit under Section 80-C to Rs.150,000. We also need to remember that Standard Deduction, is no longer available and hence this higher limit just about compensates for the absence of standard deduction. But the more important need is to rethink the concept of Section 80C as well as the overall limits. A few suggestive areas can be closely looked at.

To begin with, the Section 80C list is quite a mix and needs to be demarcated clearly. Long term savings products like Insurance, Pensions and provident funds should be given a separate dedicated limit. In fact, the principal component on home loans can be combined with Section 24, interest on home loan component and the limit can be enhanced from the current level of Rs.200,000. The tuition fees component can also be enhanced to better reflect the higher cost of education.

Currently too many sections like 80C, 80CCC and 80CCD are clubbed under the overall limit of Rs.150,000/-. To be more realistic and to incentivize people to save for the long term, the insurance / PF / pension component should be given a limit of Rs.200,000/- per annum. Additionally, tuition fees should be given a separate exemption of Rs.200,000/- to make it more in tune with the steep cost of education. The housing loan principal can be clubbed with Section 24 with an enhanced limit. All the other items like long term FDs, ELSS schemes, infrastructure bonds etc can be given an overall limit of Rs.100,000. Thus, the current Section 80C limit of Rs.150,000/- will effectively stand enhanced to a level of Rs.500,000/-. This will not only compensate for higher inflation that people have been subjected to, but also compensate for the loss of standard deduction. Apart from putting more money in the hands of people, salary earners will not be at a disadvantage vis-a-vis business income. That will surely be a good starting point.

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