New Delhi: The central government plans to revamp income tax act by clubbing all the sections providing incentives on savings instruments like insurance, pension, provident fund, bonds and small savings under a new section 80C. The new section would provide for tax relief up to Rs one lakh to all taxpayers.
The sections that will be clubbed are section 88 (see note below this report), 80L, 80CCC and 80CCD, he said.
The new section 80C would also cover incentives provided for tuition fees of children and repayment of principal amount on housing loan, he said.
The objective behind clubbing section 88, 80L and 80CCC under the proposed section 80C is to bring in uniformity in tax treatment for all savings instruments.
The move is also intended to take Indian tax structure towards the international best practices of EET model - exempt during contribution, exempt for accumulation and taxed during withdrawal.
At present, sections 80CCC and 80CCD offer tax deductions for pension payment up to Rs10,000. The savings under these two sections are taxed during the withdrawal stage and hence conform to EET model.
But other provisions like section 88 do not conform to the EET model.
In the case of section 80L, it provides for deduction up to Rs15,000 for interest earned from government securities, NSC and interest on PSU bonds.
In the case of section 88, the aggregate sum that could be invested in insurance premium, bonds, NSC and others is limited to Rs70,000 with an additional Rs30,000 for infrastructure bonds.
Further, there is a limit of Rs20,000 for repayment of housing loan and Rs24,000 for payment of tuition fees.
In this case, the rate of rebate is 20 per cent for income up to Rs1.5 lakh and 15 per cent for Rs1.5-5 lakh.
A Bill to amend the income tax act and streamline the various laws is expected soon.
Note: Section 88 covered investments in NSC, PPF, tax-savings units of mutual funds, life insurance, premium infrastructure bonds and repayment of housing loans.
Section 80L covered deduction in respect of income earned by way of dividends from any Indian company.
80CCC covered pension plans. Premiums paid for the same were eligible for deduction. Maximum deduction allowed under a retirement plan with any insurance company was Rs10,000, for a period of 25 years
Section 80CCD provided a deduction for the amount paid or deposited by an employee in his pension account subject to a maximum of 10 per cent of his salary.