Run-Up To Budget 2003
You may no longer be entitled to a deduction of Rs 10,000 a year on your taxable income if you invest in a pension plan. Instead, you are more likely to get a tax rebate of between 15 per cent and 20 per cent of your investment in a pension plan, depending on your taxable income.
Though the Budget for 2003-2004 is likely to double the tax benefit available to investments in pension plans to Rs 20,000, knowledgeable sources say the tax break is likely to shift away from Section 80 CCC(i) of the Income Tax Act, 1961, which deals with deductions on taxable income, to Section 88, which deals with tax rebates on investments made.
Worse, those with net taxable income of Rs 5 lakh and above will not be entitled to any benefit. This follows current income tax regulations where a taxpayer who earns more than Rs 5 lakh is not entitled to any tax rebate. Those earning less than Rs 1.5 lakh get a 20 per cent rebate, and those earning between Rs 1.5 lakh and Rs 5 lakh get a 15 per cent rebate.
If the relevant section becomes Section 88, it will run counter to recommendations of the Vijay Kelkar committee on direct taxes that Section 88 be eliminated and that the limit under Section 80CCC(i) be increased, to promote long-term savings.
At present, irrespective of which tax bracket one falls in, one gets a direct deduction on the taxable income up to a maximum of Rs 10,000. Up to an investment of Rs 10,000, the amount of tax saved is higher through this section than through Section 88. In the highest tax slab, this works out to a saving of Rs 3,150. If the tax break shifts to Section 88, there will be no benefit at all for those earning over Rs 5 lakh.
ICICI Prudential Life Insurance Managing Director Shikha Sharma says shifting the tax break will be a retrograde step, because
