The Direct Taxes Code bill not only allows tax payers to claim a deduction of R1 lakh under Section 80C by investing in approved funds but also allows deduction of an additional amount of R50,000 for payments made towards life insurance, health insurance and children's education.
Equity linked savings schemes of mutual funds, however, will lose their relevance as they do not qualify for the deduction under the head.
Mutual funds will continue to get the benefit of long-term capital gains tax, however.
The approved funds that will qualify for the deduction of Rs 1 lakh are provident funds, superannuation fund, gratuity fund, pension fund or any other fund approved by the Board in accordance with the Central Government's scheme.
"For individuals, deduction of R1 lakh has been retained although the scope has been reduced to a few investment options," said Vikas Vasal, executive director, KPMG. "Additional deduction of R50,000 in respect of insurance is a welcome step."