New Delhi: In a move that is seen to give a major boost to household savings and a relief to salary earners, the government hiked the exemption limit for investments by individuals in financial instruments to Rs 1.5 lakh in the Union Budget 2014.
At the moment, the investments and expenditures up to a combined limit of Rs 1 lakh get exemptions under Sections 80C, 80CC and 80CCC of the Income-Tax Act.
These include investments in Employees Provident Fund (EPF), Public Provident Fund (PPF), life insurance policy with a lock-in period of three years, equity-oriented mutual funds, Kisan Vikas Patra, National Savings Certificate and fixed deposits with five-year term among others.
The move has been taken in view of the demand from bankers and insurers regarding the faling savings rate which has come down from over 38 per cent of GDP in 2008 to 30 per cent in 2012-13.
The Direct Taxes Code (DTC) too had recommended that the combined ceiling for investments and expenditures be raised to Rs 1.5 lakh per annum.
Jaitley specifically mentioned that the entire investment limit of Rs 150,000 could be exhausted in a PPF account with a tax-free return of 8.5%. As one can avail the benefit of deduction up to the invested amount from the taxable income and the final proceeds are also tax-free, the 8.5% tax-free income is equivalent to almost 15.7% pre-tax return which is the highest secured return one can get in the system.
The government also hiked the housing interest rate deduction limit to Rs 2 lakh from Rs 1.5 lakh on personal home loans.
(With Agency inputs)