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K.R. Srivats

New Delhi , Dec. 21

A COMMITTEE of tax experts has urged the Centre to undertake annual review of the Rs 1-lakh investment ceiling set in this year's budget for allowing certain category of tax assessees to avail themselves of income-based deductions for income-tax purposes.

Informed sources said that the committee, which has come up with a roadmap for moving to the exempt-exempt-taxable (EET) system of taxation of financial savings, has favoured adjustment of the investment ceiling with the movement in inflation rate.

Under the EET method, the contributions and accumulations in savings instruments are tax-exempt, but the withdrawals are taxed as ordinary income. As a first step in the direction of adopting an EET system of taxation of financial savings, the Government had in this year's budget decided to switch from the rebate method to income-based deduction method.

Accordingly, the then existing method of providing tax rebate under Section 88 for contributions/investments in specified savings scheme was replaced with a new Section 80C, which allowed a deduction from income of an amount not exceeding Rs 1 lakh with respect to sums paid or deposited in certain specified schemes.

The investments now eligible for deduction under Section 80C are the same as those that were entitled for rebate from income tax under Section 88. These included life insurance premia, contribution to provident fund or schemes for deferred annuities, purchase of infrastructure bonds, payment of tuition fees and repayment of principal amount of housing loans.

Meanwhile, the EET panel has also suggested in its report that payments of tuition fees and repayment of principal amount of housing loans should be excluded from the ambit of Section 80C.

The committee wants Section 80C to be devoted for only "financial savings," and feels that the EET method should be applied on such pure financial savings. At the same time, it has made it clear that it is not averse to Government granting tax concessions for repayment of housing loans or payment of tuition fees under any other Section of the income-tax law.

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