Budget 2018 - Expectations on Section 80C

Individual taxpayers had hoped for Budget 2018 to be more common-man friendly as compared to that of last year. In fact, one of the many speculations last year was a possible increase in the deductions that can be claimed under Section 80C, from Rs 1.5 lakhs to Rs 2 lakhs. Much to the disappointment of individual taxpayers, no such announcement was made. Section 80C provides a tax break of up to Rs 1.5 lakhs for investments made by individuals or HUFs in tax-saving investments such as PPFs, EPFs, mutual funds / ELSS, fixed deposits or on premiums paid towards a life insurance policy, principal component of a housing loan repayment, expenses on children’s tuition fee and many more.

This year, once again, there is hope that this limit under Section 80C would be raised by the government. The individual taxpayers would undoubtedly benefit immensely from this move. For instance, you can invest in ELSS which can be claimed as a deduction under Section 80C. ELSS has of late gained a lot of popularity among the investor taxpayers in terms of better returns, shorter lock-in period, etc. But this once tax-free investment channel will not be exempted any more with long-term capital gains being taxed following this Budget announcement. 

From the government’s perspective, this is an impetus to invest more. The government, in turn, would also stand to gain as taxpayers would choose to invest in those avenues prescribed under Section 80C rather than lock up their surplus funds in unproductive assets. This would definitely turn out to be a win-win move for both the government and the taxpayer. Interestingly, there are also speculations that the raise under Section 80C to the extent of Rs 50,000, would be exclusively for a claim of deduction of the principal amount repaid towards a housing loan by a taxpayer. If this is the proposal, taxpayers would be encouraged to pre-pay their housing loans, which, so far, has been considered futile by the taxpayers, given the absence of any benefit upon the pre-payment.

Clarity in all these aspects would emerge only once the budget is out. So let’s have our fingers crossed, wait and watch!