The Direct Tax Bill has proposed to introduce a new investment scheme to avail of tax exemption. In this scheme, an investor can invest up to Rs 50,000 in life insurance policies, health insurance and children’s tuition fees.
One can also invest up to Rs 1 lakh in a year in approved securities like employees provident fund (EPF), public provident fund (PPF), pension fund and other approved securities.
At present, one can invest up to Rs 1.10 lakh in a host of instruments like EPF, PPF, pension plan, insurance, equity-linked savings schemes (ELSS), Unit Linked Savings Scheme (ULSS) and children’s tuition. Besides this, there is a separate category of Rs 10,000 to invest in infrastructure bond and Rs 15,000 in health insurance. Therefore, one can invest up to Rs 1,35,000 in various instruments.
“Though, the limit has been marginally increased, it has now been segregated in two schemes. So the freedom to invest most of the income in one particular scheme has been curtailed now,” deputy chief executive and chairman of KPMG Dinesh Kanabar said.
The increase in the limit of investment from Rs 1.35 lakh to Rs 1.5 lakh will enable a big investor, with more than Rs 10 lakh annual income, to save an additional Rs 4,500. His or her savings will go up from Rs 40,500 to Rs 45,000.
To promote insurance schemes and discourage them to be used as investment instruments, the new bill has proposed that only those insurance investments will qualify for tax exemption in which premium is only 5% of the sum assured. This means, the investment period to qualify for tax exempt schemes will be around 20 years.
At present, the premium for tax exemption schemes could go up to 20% of sum assured and the investment period is only five years. ULSS is normally short-term. Earlier, it used to be only for three years, which has now been increased to five years to qualify for tax savings instrument.