With the budget only a few days away, the media is buzzing with articles about what is expected out of the budget, and how things might shape up.
One of the recurring topics I see is raising the 80C investment limit from Rs. 1 lakh to Rs. 2 lakhs. Obviously a lot of people are hoping that this change comes to be, and the cap is raised to Rs. 2 lakhs or even higher.
This is a far cry from a few years ago when Direct Tax Code was supposed to be implemented and all of 80C exemptions were going to be eliminated.
Quite a few people used to write in comments at the time wondering about the fate of ELSS funds, and whether they should invest in them given that very soon they will not even be in existence any more. These were obviously valid concerns and if someone didn’t invest in ELSS funds because of this and next year they double the limit – that person has got to feel duped.
Then there is the whole question of the rationale of the DTC and how it was supposed to simplify tax structure and reduce rates. Instead all we have seen are things like RGESS which does a lot more to complicate the already hard to understand tax structure, and now if they raise the 80C limit, I’m sure there will be some tinkering with elements within that as well and that will add to the complicated structure as well.
If this continues to happen, then I think they can just stop pretending that DTC will eventually be implemented because the uncertainty does no good, and the introduction of RGESS shows that we aren’t going to move to a simple tax structure any time soon.
It is probably too late to do anything about it now, but I would much rather have a simple tax structure with lower tax rates instead of all these exemptions with their sub-limits and complexities.
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Can you please elaborate on ELSS,DTC,RGESS..??
thanks 🙂
They are big topics, I’ve written about them earlier, here are three links:
RGESS: http://www.onemint.com/2012/10/17/details-on-the-rajiv-gandhi-equity-savings-scheme/
ELSS: http://www.onemint.com/2011/01/02/tax-saving-elss-mutual-funds/
DTC: http://www.onemint.com/2011/12/08/overview-of-the-direct-tax-code/
thank you 🙂
ELSS is one of the best avenue for someone wanting to invest in diversifed equity and can afford to lock in funds for 3 years, irrespective of the fact whether the income tax deduction is available in future or not.Historically, ELSS funds have always outperformed its peers since the fund manager is able to take long term and value investing calls as there is no redemption pressure.
So, why invest in ELSS only for tax rebate and why restrict your invest to only Rs. 1 Lakh ?? There is no upper limit on the amount investment.
I don’t think that is true, have ELSS funds outperformed diversified equity funds in India?
I personally dont think that the limit of Section 80C would be raised from Rs. 1,00,000 to Rs. 2,00,000 as such things are usually done before the elections…. These things are usually done in an Election Budget when the main aim is to garner votes…
Anything you think is likely to happen on the taxation front?
DTC implementation is still a question..! I also heard many things like no deductions, flat rate of taxation after 10L of income and much more..!
let’s see when It will get materialized. 🙂
Never, is my guess.
Dont think 80c will increase hopefully doesnt decrease 🙁 80ccf was done away last year. Think it will be a populist budget in other ways.
80CCF was very useful for the companies issuing the bonds also unlike the tax free bonds so I hope they reconsider that if they don’t do anything else.