Considering the economic distress caused by COVID-19 pandemic, the salaried Indian middle-class taxpayers are expecting some relief from Union Budget 2021 in the form of reduction in tax rates and hike in tax exemption limit on investments in financial instruments. The Institute of Chartered Accountants of India (ICAI) has recommended the government to double the Public Provident Fund (PPF) contribution limit to Rs 3 lakh from Rs 1.5 lakh. The premier institute for chartered accountants had made this recommendation in its pre-Budget memorandum to Finance Minister Nirmala Sitharaman.
If FM Sitharaman accepts ICAI's suggestions, it would be a major relief for Public Provident Fund (PPF) account holders. Enhancement of PPF account investment limit is believed to boost further investment and encourage household savings.
In its pre-Budget memorandum, the ICAI pitched for hiking tax exemption limit for the taxpayers, saying that it would help increase their saving appetite. It has also suggested increasing Section 80C limit to Rs 2.5 lakh. "The quantum of deduction under section 80C to be increased from Rs 1,50,000 to Rs 2,50,000 to provide savings opportunities to the public at large," ICAI said.
PPF account investment limit was last enhanced by the late former Finance Minister Arun Jaitley in Union Budget 2015, when he increased it from Rs 1 lakh to Rs 1.5 lakh. Jaitley had increased the PPF investment limit in line with the hike in cumulative tax exemption limit under 80C Income Tax Act from Rs 1 lakh to Rs 1.5 lakh. The investment limits in tax saving schemes were raised with an aim to encourage household savings.
PPF is a 15-year investment scheme under which an investor enjoys tax exemption at the time of deposit, accrual of interest and withdrawal. It is a popular financial instrument for tax-saving and investment for the self-employed individuals, entrepreneurs and professionals. A minimum deposit of Rs 500 per year is required to keep the account active.
The current interest rate on deposit in PPF is 7.1 per cent, which is the lowest interest rate offered on the popular small savings scheme since 1977. Till the March quarter of FY20, PPF accounts used to attract 7.9 per cent interest.