The investment limit for the purpose of tax deduction is likely to be raised to Rs 1.4-1.5 lakh in Budget 2011.
At present, individuals can invest up to Rs 1.2 lakh in tax-saving instruments, including Rs 20,000 in infrastructure bonds, and the limit may be raised to encourage long-term savings.
In the works is a proposal to raise the tax-saving ceiling from Rs 1 lakh as well as increase the limit for infrastructure investment.
Top officials said the government would encourage people to invest in infrastructure bonds and pension and insurance products as these generate long-term savings and can be used to fund the country’s growing need for highways, ports, airports and power plants.
Investment in pension funds is covered by the Rs 1-lakh tax exemption under Section 80C of the income tax act — this could be raised by Rs 10,000-20,000.
Specific infrastructure bonds are eligible for tax deduction of up to Rs 20,000 under Section 80FF over and above the Rs 1-lakh limit, and this could be raised to Rs 30,000. If the tax-saving sops are tweaked, a male taxpayer below 65 years of age and with an income of Rs 3-3.1 lakh will not have to pay any tax even if the threshold is kept at the existing Rs 1.6 lakh.
The finance ministry has earlier clarified that the direct tax code (DTC), which will come into effect from 2012-13, will continue with the EEE, or exempt-exempt-exempt, provisions for long-term tax saving schemes.
It will ensure exemption at all stages for money parked with the General Provident Fund and the Public Provident Fund. Similar reliefs will be available for pension schemes run by the regulator and pure life insurance products.
Retirement benefits, including money received under the voluntary retirement schemes, will also be tax exempt, subject to limits to be set by the government.
The DTC, in an earlier version, had sought to replace the EEE provisions with EET, under which withdrawals on maturity would be taxed.
Officials said a committee headed by Deepak Parekh had floated a proposal for a Rs 50,000-crore infrastructure debt fund. Finance minister Pranab Mukherjee is believed to be weighing various options to create the fund.
Officials indicated that the structure of infrastructure bonds might also be changed. Infrastructure bonds, which carry an interest of 7-8 per cent, were supposed to be attractive because of the tax exemptions. However, high inflation and compulsory lock-in periods have taken the sheen off them.
Another committee headed by former RBI deputy governor Rakesh Mohan is looking at ways to mobilise more retail savings through infrastructure non-banking financial corporations. The committee’s report, however, may not be incorporated in the budget and is likely to be taken up later.
Source : The Telegraph.
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