In a move that will increase the savings capacity of individuals, Finance minister Pranab Mukherjee has announced an additional Rs 20,000 deduction over and above the existing limit of Rs 1 lakh — provided the investment is made in long-term infrastructure bonds notified by the Centre.
The increased deduction of Rs 20,000 will translate into an additional benefit of Rs 2,060 per annum over and above the maximum benefit of Rs 51,500 per annum that results from the broadening of the personal taxation slab.
The only limitation seems to be that the move would only benefit people who have the capacity to save in excess of Rs 1 lakh.
“This benefit will be only for people who already save the existing limit of 1 lakh and so people who can’t save that limit will have no benefit,” said Vishal Dhawan, a Mumbai based certified financial planner. “People will have to invest necessarily in infrastructure bonds to claim benefits; such bonds have seen good demand in the past also.”
Evidently the government has made this move with an eye to boost infrastructure development in the country, which is still lagging.
“To promote savings as well as to ensure their utilization for the thrust area of infrastructure, I propose to allow deduction of an additional amount of Rs 20,000 for investment in long term infrastructure bonds,” said Mukherjee in his budget speech.
While the government has provided Rs 1,73,552 crore in the budget 2010-11, for the infrastructure development in the country, allowing additional deduction will help the government’s cause of raising funds and individuals cause of saving on taxes.