Why may the cap on tax-saving deductions under section 80C be increased in Budget 2022?

  • 19 Jan 2022
  • Budget
  • Comments Off on Why may the cap on tax-saving deductions under section 80C be increased in Budget 2022?

Why may the cap on tax-saving deductions under section 80C be increased in Budget 2022?

Many people rely on the section 80C advantage to save money on taxes. The highest deduction allowable under section 80C of the Income-tax Act of 1961 was Rs 1 lakh per year until FY2013-14.

The ceiling was thereafter raised to Rs 1.5 lakh per year in FY2014-15. The limit has stayed unchanged since then, i.e. for the past seven years. Many people’s expenses have increased, and their earnings have climbed, but the section 80C benefit has not.

As a result, many people quickly reach their limit. As a result, raising the limit under section 80C is nearly always on the wish list of taxpayers prior to the annual budget.

With the pandemic and rising inflation in view, the government should raise the section 80C ceiling to at least Rs 2.5 lakh per year in the Union Budget of 2022. Here’s how doing so will benefit not only the regular taxpayer, but also the government.

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What is the section 80C benefit?

Individuals and Hindu Undivided Families are the only ones eligible for the deduction under section 80C. (HUFs). It is the most commonly used part for tax savings. A person can claim a deduction under section 80C only if they invest in certain savings plans or suffer certain expenses that are stated there. The taxpayer is permitted to invest in one or more savings products up to a limit of Rs 1.5 lakh in total deductions. The threshold limit is calculated by taking into account all qualifying investments made before the end of the financial year for which a deduction is sought.

The following are the main tax-saving options available when claiming a deduction under section 80C:
  • Payment of a life insurance premium
  • Public Provident Fund Contributions
  • Employee Provident Fund and Voluntary Provident Fund contributions
  • Repayment of the principal on a home loan
  • For the purchase of a home, stamp duty and registration fees were paid.
  • ELSS or tax-advantaged mutual funds investments
  • Sukanya Samriddhi Account Scheme Investments
  • Children’s tuition fees
  • 5-year tax-saving bank or postal fixed deposit investments
  • Investing in the Senior Citizen Savings Plan

Why should the Section 80C cap be raised?

After subtracting the allowable section 80C deduction amount from an individual’s gross total income, the taxable income is calculated. As a result, any increase or decrease in the section 80C deduction limit has a direct impact on taxable income and, as a result, on an individual’s tax burden.

The increase in the section 80C deduction limit serves a number of purposes:

Individual taxpayers should consider the following:

  • It lowers the tax burden on individuals.
  • It assists individuals in saving for financial objectives such as retirement, children’s education, and so on.
  • Aids in the purchasing of a home
  • It gives them a feeling of security.

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In terms of the government:

  • It encourages households to save more and keeps inflation under control.
  • It aids in the channelling of long-term money to specialised areas such as infrastructure, among other things.
  • It offers the government with low-cost funds.
  • It stimulates particular businesses, like as housing, which is a key source of employment.
  • Aids in the achievement of social objectives (Sukanya Samriddhi Scheme), such as girl child education and marriage.

As previously stated, the deduction under section 80C was last increased to Rs 1.5 lakh in FY 2014-15. Meanwhile, the cost of living has risen significantly, which has been exacerbated by the pandemic’s negative impact. As a result, the current cap of Rs 1.5 lakh needs to be reconsidered, with a minimum increase to Rs 2.5 lakh in Budget 2022. This will also assist the government in achieving its ‘Ease of Living’ aim and will assist individual taxpayers in reducing their tax burden.

On February 1, the Finance Minister will propose the Union Budget 2022-23 to Parliament.

  • 18 Jan 2022
  • Budget
  • Comments Off on On February 1, the Finance Minister will propose the Union Budget 2022-23 to Parliament.

On February 1, the Finance Minister will propose the Union Budget 2022-23 to Parliament.

GST rate cut on two-wheelers

FADA, the trade association for automobile dealers, has urged the government to lower the GST rate on two-wheelers to 18% in order to boost demand in the market.

The Federation of Automobile Dealers Association (FADA), which represents over 15,000 car dealers with a total of 26,500 dealerships, has stated that two-wheelers are not a luxury item, and hence the GST rate should be reduced.

“FADA begs that the Ministry of Finance regulate and cut GST rates on two-wheelers to 18 percent, so that our country can continue to dominate the world,” the industry group said on Monday.

On February 1, Finance Minister Nirmala Sitharaman will propose the Union Budget 2022-23 to Parliament.

It is worth noting that two-wheelers are utilised not as a luxury item but as a need for individuals in rural areas to travel long distances for their daily working demands, according to the report.

“As a result, the logic of 28% GST + 2% cess for luxury/sin products does not hold true for the two-wheeler category,” FADA observed.

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A fall in the GST rate will balance the price spike and assist stimulate demand, it noted, at a time when vehicle prices are increasing after a 3-4 month gap due to increases in input costs and numerous other variables.

“FADA expects that increased tax collections will result from increased demand and the ripple impact it will have on many dependent industries. It will be revenue positive in the mid- to long-term, as well as contribute to improved consumer mood and, as a result, the entire economy “According to the industry group.

It also requested a consistent 5% GST rate on the margin for all used automobiles in order to establish a win-win situation for the government, dealers, and vehicle owners.

“With the reduction in GST, the industry would be able to migrate from an unorganised to an organised segment, bringing in more business into the GST purview and putting a stop to tax leakages,” FADA said.

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The government presently levies a 12 to 18 percent GST on used automobiles.

Vehicles with a length of less than 4,000 mm are taxed at 12%, while those with a length of more than 4,000 mm are taxed at 18%.

“The used automobile market is 1.4 times larger than the new car market, with 5-5.5 million cars sold year and a revenue of approximately Rs 1.75 trillion. Only 10-15% of the transaction is handled by authorised dealers “According to FADA.

The government has decreased corporation tax to 25% for private limited firms with a revenue of up to Rs 400 crore, according to the industry organisation.

“Because most traders in the auto dealership sector fall into this group, the same benefit should be extended to all LLP, Proprietary, and Partnership firms. This would assist enhance the spirit and sentiment of the 5 million individuals employed by the traders “According to FADA.

The organisation also asked the government to take significant initiatives to help the sector grow quicker. FADA also called on the government to reinstate the ‘Depreciation Scheme’ for fiscal year 2022-23.

The Finance Ministry will begin the budgetary process on October 12th.

The Finance Ministry will begin the budgetary process on October 12th

The Ministry of Finance will start to construct the 2022-23 annual budget, starting on 12 October, with indicators that the Indian economy is recovering and is being severely affected by COVID-19. The following year’s budget will have to tackle crucial concerns such as demand generation, job creation and a sustained 8% growth plus economic growth.

According to the Department of Economic Affairs Budget Division’s Budget Circular (2022-23) dated September 16, 2021, “the pre-Budget/RE (Revised Estimate) meetings will commence on October 12, 2020.”

“All financial advisers should ensure that the essential facts linked to these discussions are included in the RE module of the UBIS (Union Budget Information System),” according to the circular.

After the spending secretary completes negotiations with other secretaries and financial advisers, the Budget Estimates (BE) for 2022-23 will be provisionally finalised.

Pre-Budget meetings will begin on October 12 and last through the second week of November, according to the statement.

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“Given the unique circumstances of this year, the final budgetary allocations will be based on the overall fiscal condition, subject to the ministry/absorptive department’s capacity,” it said.

Ceilings for all areas of spending, including the central sector and government-sponsored initiatives, will be discussed, according to the statement.

As a result, it said that the RE 2021-22 and BE 2022-23 for all categories of spending, as well as select schemes/projects, may be expressed separately for revenue and capital expenditure.

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It stated that the budget estimates for 2022-23 are as follows: “The allocations for the establishment and other central government expenditures will be finalised. During the pre-budget meetings, proposed ceilings for Central Sector (CS) and Centrally Sponsored Programs (CSS) schemes would be considered.”

The Budget for 2022-23 is expected to be delivered on February 1st, during the first part of Parliament’s Budget Session, which typically begins in the last week of January each year.

In actual terms, the budget for the current fiscal year forecast a growth rate of around 10.5%, with a fiscal deficit of 6.8% of GDP (GDP).

The government of Prime Minister Narendra Modi abolished a colonial-era practise of presenting the Budget towards the end of February. On February 1, 2017, then-finance minister Arun Jaitley delivered the annual accounts for the first time.

When the Budget was delivered at the end of February, the three-stage Parliament approval procedure used to be completed around mid-May, weeks before the monsoon rains started.

This meant that government departments would only begin investing on projects once the monsoon season ended in late August or early September.