Hiking Section 80C deduction limit from the current Rs 1.5 lakh to Rs 2 lakh has been on Indian citizens’ wish list for a very long time.

This is because it is one of the ways in which any Indian citizen can lower his/her taxable income by investing in Section 80C instruments.

Let’s quickly revise what we know about Section 80C.

Section 80C is a part of the Income Tax Act, 1961, that allows Indian citizens to lower their taxable outgo by decreasing their taxable income by investing in a few government-defined citizens. By investing in instruments that fall under the Section 80C, one can reduce his/her taxable income by maximum Rs. 1,50,000 per financial year. Thus, Section 80C provides citizens of the country with tax relief of up to Rs. 1,50,000 lakh.

Section 80C instruments are: 1. Five- year bank deposits; with a lock-in period of 5 years 2. Public Provident Fund (PPF); with a lock-in period of 15 years 3. National Savings Certificate; with a lock-in period of 5 years 4. National Pension Scheme; with a lock-in up to retirement 5. ELSS Funds; with a lock-in period of 3 years

Other than the instruments stated above, premiums paid towards a life insurance policy; the principal component of a housing loan repayment; expenses on children’s tuition fee and many more are included in Section 80C deductions. Do note, lowering taxable income by investing in Section 80C is absolutely legal and a provision provided by the government to lower an individual’s tax outgo.

Hence, there will be a lot of elation if Finance Minister Piyush Goyal presents a Budget that increases Section 80C deduction from Rs 1.5 lakh to Rs 2 lakh.

From a numbers point of view, here’s how hiking the Section 80C limit will change your finances: - If you have a taxable income up to Rs 5 lakh, then you stand to save tax up to Rs 2,500 (5% of Rs 50,000 excluding cess) if you exhaust the entire Rs 50,000 additional limit provided in tax-saving instruments.

- If you have a taxable income up to Rs 10 lakh, then you stand to save tax up to Rs 10,000 (20% of Rs 50,000 excluding cess), if you exhaust the entire Rs 50,000 additional limit provided in tax-saving instruments.

- If you have taxable income above Rs 10 lakh, then you would be able to save tax up to Rs 15,000 (30% of Rs 50,000 excluding cess and surcharge, where applicable), if you exhaust the entire Rs 50,000 additional limit provided in tax-saving instruments.

Here: - The tax rate is levied according to one’s taxable income - Rs 50,000 is the difference between the minimum tax exemption amount- Rs 3 lakh – Rs 2.5 lakh.