The finance ministry is likely to double the exemption limit for investments by individuals in financial instruments to Rs2 lakh from the current Rs1 lakh in order to give a boost to household savings.
At present, individual investments and expenditures up to a combined limit of Rs1 lakh get exemptions under sections 80C, 80CC and 80 CCC of the Income-Tax Act.
The government is considering a hike in exemption limit to personal savings as the overall savings rate has come down from over 38 per cent of GDP in 2008 to 30 per cent in 2012-13.
The hike in the exemption limit is expected to provide some relief to the salary earners who are reeling under the impact of high inflation. The announcement is likely to be made in the budget.
The Direct Taxes Code (DTC) also has recommended a hike in the combined ceiling in exemption for investments and expenditures to Rs1.5 lakh per annum.
Sources said the revenue department is assessing the burden on the exchequer in case of increase in the benefit limit.
Finance minister Arun Jaitley will present the budget for 2014-15 in the Lok Sabha on 10 July.
There have been demands from bankers and insurers to hike the tax exemption limit from Rs 1 lakh per annum to encourage household savings.
At present, life insurance premiums, public provident fund, employees provident fund, National Savings Certificates, repayment of capital on home loan, equity linked saving schemes sold by mutual funds and bank FDs of maturity of five years and beyond are eligible for the purpose of tax exemption under section 80C, 80CC and 80 CCC of the Income-Tax Act.