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Limit for investment-linked tax exemptions may go up

The Finance Ministry is all set to provide some tax relief to the salaried class by increasing the limit for tax exemption, report Deepak Joshi and Gaurav Choudhury.

india Updated: Feb 18, 2007 19:16 IST

The Finance Ministry is all set to provide some tax relief to the salaried class by increasing the limit for tax exemption that can be claimed by investing in specified instruments from the current Rs1 lakh per annum, government sources said.

Banks have also pressed for tax exemptions on interest earned from various savings accounts. Earnings on fixed deposits up to Rs 1 lakh are at present exempt from tax but are taxed at the time of maturity.

Officials suggest that the exemptions are aimed at raising the level of gross domestic savings and also can help control the steep rise in the rate of inflation which has reached 6.73 per cent in the last reported week.

However, the option of investments in available instruments would continue to vest with individuals.

The exemption plan allows individuals to invest in tax savings instruments such as insurance policies, equity-linked savings schemes, national savings certificates and public provident fund under Section 80 C of the Income Tax Act.

Government sources indicated that the objective within the government is to spruce up long-term savings for infrastructure projects. At present the savings rate is 32.4 per cent of the gross domestic product (GDP).

There has been a rise in the level of overall savings in the economy, with Gross Domestic Savings (GDS) accounting for 32.4 per cent of GDP as compared to 31.1 per cent.

A rise in savings by households and private sector corporate entities accounted for the increase in GDS, even thoughsavings by public sector undertakings (PSUs) registered a decline.

Savings by households, which include financial and physical assets, increased from Rs 3,18,791 crore and Rs 3,56,043 crore in 2004-05 to Rs 4,16,462 crore and Rs 3,80,655 crore in 2005-06 respectively, accounting for about 22 per cent of the total savings last year.

Savings of the private corporate sector went up from Rs 2,23,512 crore in 2004-05 to Rs 2,88,430 crore in 2005-06.

The savings of the public sector, however, showed a decline from Rs 74,682 crore in 2004-05 to Rs 71,262 crore in 2005-06.

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First Published: Feb 18, 2007 19:16 IST