Letter to BS: New tax regime sans exemptions may encourage saving habits

Apropos your edit "Glide path for direct tax" (February 3), while the choice given to tax payers to transit to a new tax regime sans exemptions is forward looking, what must be debated is whether this option for the new age earners will result in increasing the rate of savings or make a further dent into the already declining savings habit. Experience suggests that inducing salary earners to save a few bucks to avail of tax benefits encourages them to buy savings products such as ELSS, ULIP, PPF and of late FDs in banks that are locked in for a minimum of three years.

Instances of people availing of short-term loans to put money in tax saving schemes, especially towards the end of the financial year, abound. And believe it or not, these forced savings cumulatively bring in financial stability to the lives of individuals, besides coming in handy for education, marriage etc of their children. It will be worthwhile to consider restoring the exemptions afforded for savings under Section 80C of the I-T Act by making appropriate changes to the proposed formula.

Ganga Narayan Rath, Hyderabad Letters can be mailed, faxed or e-mailed to: 

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