In FY22, India is projected to have foregone Rs. 1.43-lakh crore by allowing incentives to income taxpayers. This is a 12 per cent increase from the revenue Impact of major income tax Incentives for in FY21, which was Rs. 12.82-lakh crore. However, it is much lower than the pre-pandemic figures of Rs. 1.55-lakh crore.
A major chunk of this money, 58.4 per cent of it, comes from deductions claimed on account of investments and payments under Section 80C of the Income Tax Act. This Section allows individuals and Hindu Undivided Families a maximum deduction of Rs. 1.5 lakh every year from the total income.
This includes investments made under Public Provident Fund (PPF), Employees’ Provident Fund (EPF), LIC premia and equity. In FY22, the centre is projected to forego Rs. 84,080 crore, on account of this incentive. This is, however, not part of the new tax regime. This could also mean that in FY22, not many chose to move to the new income tax regime.
“The revenue impact for providing a tax incentive for investments in various saving instruments, repayment of housing loan and payment of tuition fees for children is the single largest tax expenditure in case of individual taxpayers followed by rebate on tax in case of resident individuals having income up to Rs. 5 lakh, deduction on account of health insurance premium and contribution to the new pension scheme,” reads the receipt budget for FY24.
The next biggest contributor is Section 80D, which is around Rs. 7,231 crore. Every individual or HUF can claim a deduction from their total income for medical insurance premiums paid up to Rs. 25,000 in any financial year. In the case of senior citizens, the deduction limit allowed is Rs. 50,000.
The amount under this Section has been rising every year and in FY22, it is projected to have jumped by 12 per cent, compared with FY21, indicating that more people are taking up health insurance.
