Tax-exempt investment limit likely to be hiked

The investment limit for which tax can be deducted is likely to be raised to Rs1.4 or Rs1.5 lakh from the current 1.2 lakh in the upcoming annual budget. At present, individuals can invest up to Rs1.2 lakh in tax-saving instruments, including Rs20,000 in infrastructure bonds. The limit may be raised to encourage long-term savings.

In the works is a proposal to raise the tax-saving ceiling from Rs1 lakh as well as increase the limit for infrastructure investment, according to a report in Kolkata-based The Telegraph.

The paper cited unnamed top officials who said the government would encourage people to invest in infrastructure bonds and pension and insurance products, as these generate long-term savings and can be used to fund the country's growing need for highways, ports, airports and power plants.

Investment in pension funds is covered by the Rs1 lakh tax exemption under Section 80C of the Income Tax Act, and this could be raised by Rs10,000-Rs20,000.

Specific infrastructure bonds are now eligible for tax deduction of up to Rs20,000 under Section 80FF over and above the Rs1 lakh limit, and this could be raised to Rs30,000.

If the tax-saving sops are tweaked, a male taxpayer below 65 years of age and with an income of Rs3-3.1 lakh will not have to pay any tax even if the threshold is kept at the existing Rs1.6 lakh.