Budget 2012: Tax Exemption Limits in Long-Term Savings, Children’s Education

The standing committee of parliament on Finance has recommended exemption limit for income-tax at Rs.3 lakh per annum. The Direct Tax Code (DTC) has proposed a limit of Rs.2 lakh from the current limit of Rs.1.8 lakh. The committee has scheduled a meeting on March 2, for finalizing its views on DTC bill regarding income tax relief, long-term savings, social security expenditure.

At present, investments up to Rs.1 lakh has tax exemption in specified instruments like life insurance policies, Public Provident Fund (PPF), Equity-Linked Saving Schemes (ELSS), National Savings Certificate (NSC) and so on. The committee is planning to include school fee for two children and provide an additional limit of Rs 50,000 for expenditure on children’s education.

However, the committee’s majority view is that the limit on long-term savings eligible for exemption from income-tax should be increased from Rs.1 lakh to Rs.1.5 lakh in the DTC bill. Also, the tax deduction by incurring expenditure on life insurance and health insurance may increase from Rs.50,000 to Rs.1 lakh. In order to promote social security for senior citizens, the majority view in the committee is that an additional deduction limit of Rs.20,000 be separately allowed on account of health insurance premium paid for dependent parents.

But the corporate tax remained unchanged i.e, the committee is unlikely to make any changes in case of corporate tax.