The Institute of Chartered Accountants of India (ICAI) in its pre-budget memorandum has recommended the government to increase the annual limit for contribution to Public Provident Fund (PPF) to Rs 3 lakh, from the present ceiling of Rs 1.5 lakh. The ICAI has also asked the government to increase the maximum limit for deduction under section 80C of the Income Tax (I-T) Act to Rs 2.5 lakh from the present Rs 1.5 lakh.
Budget 2021-22 will be presented on February 1 by Finance Minister Nirmala Sitharaman, which will be the third budget of the Modi 2.0 government.
PPF, as we know, is a long term and popular investment scheme that helps investors in mobilising small savings. According to experts, PPF is one of the safest fixed income products and offers the best tax saving options. The maturity amount and the overall interest earned during the period of investment are tax-free.
As per ICAI, the suggestion to increase the ceiling of PPF contribution to Rs 3 lakh may boost the domestic savings as a percentage of Gross Domestic Product (GDP) and will have an anti-inflationary impact.
Further, the ICAI said, the present limit of Rs 1.5 lakh has not been increased for several years and requires reconsideration.
“The revised monetary limit will help in increasing the savings of individuals and is necessary keeping in view the rate of inflation,” it added.
Additionally, the increase in quantum of deduction under section 80C to Rs 2.5 lakh may provide savings opportunities to the public at large, ICAI opined.
In the pre-budget memorandum, ICAI also suggested amending the section 80CCC of the I-T Act.
As per section 80CCC, if any contribution is made by the assessee to a pension fund and deduction is claimed under that section, all withdrawals from the scheme by the assessee (including the principal amount) are subjected to tax. This is causing hardship in respect of those assessees who have simply made contributions to this scheme and have not claimed any deductions, ICAI said.
Hence, ICAI added, it is important to amend this section to the effect that in cases where the deduction is not claimed under this section, only the appreciation component of the investment will be subjected to tax.
"Even if the deduction is claimed, only the amount of deduction claimed should be added to the income at the time of withdrawal from the scheme and not the entire maturity proceeds. Of course, any appreciation over the principal invested can also be taxed as a capital gain," it said.
(Edited by : Ajay Vaishnav)