Will Section 80C limit go up in the budget?

Most mutual fund investors are waiting to see whether the finance minister would raise the Section 80C limit in this year’s budget. Section 80C allows taxpayers to make certain investments and claim tax deductions of up to Rs 1.5 lakh in a financial year. Popular investment options under Section 80C are Public Provident Fund, National Savings Certificate, Equity Linked Savings Schemes among others.

Many mutual fund managers are hoping for an enhanced limit for Section 80C. The mutual fund industry has been asking for a higher limit for tax saving investments under Section 80 for a very long time. They have been demanding that mutual funds should be allowed to launch a debt mutual fund scheme in the lines of ELSS or tax saving mutual funds. A separate or enhanced Section 80C limit would help investors to invest more money in a financial instrument, they argue.

The Section 80C of the Income Tax Act has been overcrowded for a very long time. Many regular tax payers exhaust the limit with their investments in Employees Provident Fund and life insurance premium. Many mutual fund participants complain that most taxpayers tend to utilise 50% or more of their Section 80C limit already with their EPF and life insurance premium. So many people can invest hardly Rs 50,000 to save taxes.

However, the priority of the government is totally different in the last two years as it tries to balance the impact of the pandemic and the growth prospects of the economy. So, many mutual fund participants concede that the government won’t have the bandwidth to attend to look at micro level demands. So, the budget may try to put more money in the taxpayers by a reduction in rates. So, don’t harbour high hopes.


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