INDIVIDUAL tax payers may be in for some cheer. The tax-free investment limit for individuals may soon be hiked from the present Rs 1 lakh to Rs 1.5 lakh.
The proposal that the government is deliberating has a condition though: the additional Rs 50,000 will have to be invested in infrastructure bonds. The move is aimed at mobilising funds to bridge the resource gap of about $40 billion in infrastructure during the Eleventh Plan period (2007-2012).
The power ministry has already taken the initiative, under the prime minister’s direction, to launch Vidyut Vikas Patra or power bonds. The move may be announced during next year’s budget.
“The government is considering enhancing the tax-free investment limit with the dual purpose of providing relief to tax payers and mobilising funds for the infrastructure sector, which requires about $500-billion investment during the Eleventh Plan. The move has been favoured by a standing group of power ministers constituted by the prime minister. The group has now constituted a sub-committee headed by Planning Commission deputy chairman Montek Singh Ahluwalia to fine-tune the proposal for inclusion in next year’s budget,” an official source said. The move may also help the government in the event of snap polls, added the source.
Infrastructure bonds are considered a good option for mobilising resources with the expectation that the enhanced limit of Rs 1,50,000 could mobilise about Rs 3,00,000 crore for the infrastructure sector in the remaining four years of the Plan. The instrument has lost its attraction for tax payers as there is no sub-limit for obtaining tax exemption on such investments now.
Till the 2004-05 fiscal, individual tax payer were permitted an exemption on income tax up to an investment limit of Rs 1,00,000 per annum with a sub-limit of a maximum investment of Rs 30,000 in infrastructure bonds. However, this sub-limit was removed from fiscal 2005-06 and investments in infrastructure bonds were made part of overall Rs 1,00,000 limit for availing tax exemption.