2016 Budget offers no 80C cheer for taxpayers
Finance minister Arun Jaitley did not offer any breather under the Section 80C of the Income Tax Act 1960. The “80C scheme” offers tax breaks for money parked under tax savings products such as life insurance, certain fixed deposits, small savings schemes such as public provident fund (PPF) and national savings certificate (NSC) as well as provident fund contribution.india Updated: Mar 01, 2016 07:46 IST
Going against wide speculations and expectations, the Union Budget 2016-17 did not provide any tax breaks.
While presenting his third Budget, finance minister Arun Jaitley did not offer any breather under the Section 80C of the Income Tax Act 1960. Popularly known as the “80C scheme”, this offers tax breaks for money parked under tax savings products such as life insurance, certain fixed deposits, small savings schemes such as public provident fund (PPF) and national savings certificate (NSC) as well as provident fund contribution.
With five states election-bound this year, expectations of populist measures such as tax breaks were high.
By providing tax breaks, the government loses a chunk of revenue in the short-term due to lower income tax collections, but it stands to gain in the long-term through household financial sector savings, critical to fund India’s infrastructure needs.
More household money into such instruments also help the government to dip into the pool to fund its fiscal deficit. Many state-administered avenues such as post-office savings schemes are among those instruments that offer tax breaks under the Section 80C.
Total household savings in India at the end of 2013-14 — the latest for which data is available — stood at Rs 20.65 lakh crore. Nearly two-thirds of these savings (60.4%, or about Rs 12.46 lakh crore) were in physical assets such as gold and real estate, with remaining ( 39.6% or about 8.19 lakh crore) in financial savings such as bank deposits, mutual funds and company shares and debentures.
The argument is that higher tax breaks would encourage people to channel their savings into the formal financial sector.
However, experts point out that ‘no tax-break’ is on expected lines as the governments generally offer breaks usually in their first two years, or last year in office. In fact, Jaitley had raised the exemption limit in the Budget for 2014-2015 from Rs 1,50,000 to Rs 2,00,000. Then again in 2015, the finance minister provided additional tax relief for investments under New Pension Scheme (NPS).
“While there were significant expectations by individual taxpayers from this Budget, the finance minister has focused on small taxpayers. A marginal relief of Rs 5,000 has been provided to individuals earning income up to Rs 5 lakh, individuals not owning a house and not receiving HRA have been granted an additional deduction of Rs 36,000 and there are also benefits for first-time home buyers” Divya Baweja, partner at Deloitte Haskins & Sells LLP.
The finance minister while presenting the Budget said that the loss to the exchequer for doling out the above income tax exemptions and rebates will be Rs 1,060 crore.