Some of the factors that accounted for tax exemptions included housing loan repayment (principal), five-year and above tenure fixed deposits, provident funds (PFs) and life insurance policy premiums are some investment vehicles that qualify for tax exemption under Section 80C of the Income Tax Act.
A doubling of tax exemption would mean, tax savers can now save upto RS 2 Lakhs. In other words, high earners with a taxable income of above Rs. 10 lakh will be able to save Rs. 30,000 in taxes per year.
Those in the mid-income category with taxable income between Rs. 5-10 lakh will now be able to save Rs. 20,000 in taxes, while individuals in the Rs. 2-5 lakh tax slab will save Rs. 10,000 per year.
On the flip side, the money that is being saved at the domestic level is considered a useful revenue source for building infrastructure, which in turn is the top priority of the Modi government. Doubling of tax exemption, in that case, will cut down on the government resources drastically to over Rs 30,000 crore. The only solution to this could be increase in other taxes such as exicise duty or import duty. The divestment target may also be raised from the current target of Rs 36,925 crore.