Standard deduction may be raised to Rs 1.2 lakh

[K.Karthik Raja]

Standard deduction may be raised to Rs 1.2 lakh

Individual tax payers may be able to avail of higher standard
deduction on taxable income from the next financial year with the
finance minister considering raising the standard deduction limit to
Rs 1,20,000, from the present Rs 100,000, under Section 80C of the
Income Tax Act, 1961.

This 20 per cent increase will allow a taxpayer to save up to Rs 2,000
in taxes every year, a senior government official said.

An announcement may be made in the Budget on February 29, which is
likely to be the last before the next general election.

Under Section 80C, 80CCC and 80CCD of the Income Tax Act, individuals
can claim total deduction up to Rs 1,00,000 a year towards life
insurance premia, five-year bank deposits, provident fund,
superannuation fund, national saving certificates, tuition fees and
many other investments like in mutual funds.

The list of savings and investments that qualifies for deduction under
Section 80C was expanded in December, 2007 to include five-year post
office time deposits and the senior citizens savings scheme.

The deduction of Rs 1,00,000 for such a large number of savings and
investment items is grossly inadequate, tax experts said.

"To accelerate capital formation in the economy, the government should
think of increasing the deductions under Section 80C to Rs 1,50,000.
This will definitely fuel savings growth," said Gaurav Taneja,
partner, Ernst & Young.

However, it is anticipated that the increased investment limit under
Section 80C may be allowed only for specified savings instruments like
a pension scheme aimed at promoting old-age security.

The insurance industry has been demanding a separate exemption limit
of up to Rs 1,00,000 for very long-term investments like pensions and
annuity schemes.