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Soon arrival of a bill to amend the income tax act.

Government plans to revamp imcome tax act by clubbing all the sections providing incentives on savings instruments under a new section 80c

The grand move by the government is intended to take the Indian tax structure towards the international best practices of ‘EET’ (exempt during contribution, exempt for accumulation and tax during withdrawal) model to bring uniformity in tax treatment for all savings instruments. All the saving instruments like insurance, pension, provident fund, bonds and small savings are going to be clubbed in Section 80c. A Bill to amend is expected soon. In Section 80c there will be a relief of tax upto Rs 1 lakh for all tax payers. The sections that will be clubbed are section 88, 80L, 80CCC and 80CCD. According to Finance Ministry official, the new section will also cover incentives provided for tuition fees of children and repayment of principal amount on housing loan but additional benefits will be abolished. The additional benefits here referred to those who has been by default escaped the income tax.

Now, sections 80CCC and 80CCD offer tax deductions for pension payment up to Rs 10,000. The savings under these two sections are taxed during the withdrawal stage and hence confirm to EET model. But section 88 do not confirm to the EET model. Section 80L provides for deduction up to Rs 15,000 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 Rs 70,000 with an additional Rs 30,000 for infrastructure bonds. Further, there is a limit of Rs 20,000 for repayment of housing loan and Rs 24,000 for payment of tuition fees. In this case, the rate of rebate is 20 per cent for income up to Rs 1.5 lakh and 15 per cent for Rs 1.5-5 lakh. In this case, the rate of rebate is 20 per cent for income up to Rs 1.5 lakh and 15 per cent for Rs 1.5-5 lakh.

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