The change
From Rs 1.2 lakh, the annual tax-saving limit is set to rise to Rs 3 lakh under DTC.
Tax-saving investments and certain expenses of up to Rs 1 lakh a year are eligible for deduction under Section 80C. Up to Rs 20,000 invested in infrastructure bonds is deductible under Section 80CCF. This combined tax deduction limit of Rs 1.2 lakh may get enhanced to Rs 3 lakh a year under DTC. However, the number of tax-saving options is likely to come down in the new regime.
3 years is the lock-in period for ELSS funds, the shortest for any taxsaving option. ELSS may not be a saving option under DTC.
15 years may be the shortest lock-in period for saving options under DTC. Some won't allow withdrawal before retirement.
The impact
It could encourage more savings, help those who exceed the existing limit and reduce tax liability.
Bigger benefits: Taxpayers who have big-ticket Ulips and two school-going children usually exceed their Section 80C limit of Rs 1 lakh a year. Under DTC, they could benefit from stowing away extra because the tax-saving limit would be higher.
Higher deduction, fewer options: The permitted taxsaving options under the proposed Section 66 are likely to include approved provident funds, Public Provident Fund, pension funds (including the New Pension Scheme) and life insurance policies. School fees could get deduction under Section 67.
