Batting for small savers, Reserve Bank of India Governor Raghuram Rajan on Wednesday said the yearly investment limit of ₹1.5 lakh in long-term tax saving instruments should be raised.

The Governor’s observations assume significance as the Modi Government will present its Budget on February 28.

The Union Budget for 2014-15 had upped the investment limit under Section 80C of the Income-Tax Act from ₹1 lakh to ₹1.5 lakh. “We have moved away from negative real interest rates to positive real interest rates and that is important to reward the saver. The other aspect is whether there could be some tax benefits to savings. Remember, the government increased the limits for tax benefit savings by ₹50,000 in the last Budget,” Rajan said in a teleconference with analysts and researchers.

Under Section 80C, investments of up to ₹1.50 lakh in public provident fund, provident fund, new pension scheme, insurance policies and equity-linked saving schemes are deducted from the taxable income.

Falling savings rate The Union Budget for 2014-15 had said the savings rate has come down from over 38 per cent of GDP in 2008 to 30 per cent in 2012-13. “And the question is: is there room for more? Primarily because the real tax benefit has fallen over time, as that limit was for long time ₹1 lakh. So, maybe, what we have to do is increase that,” explained Rajan.

The Governor said lower inflation played a part in increasing real disposable incomes and thereby giving people more to spend as well as to save.

“And I think that also could play a part in (increasing) savings,” he said.

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