With the Union Budget 2026 scheduled for 1 February 2026, there’s growing expectation among taxpayers and experts that the government could increase the tax‑saving deduction limit to ease the tax burden on individuals. One of the key proposals being discussed ahead of the Budget is raising the deduction cap under Section 80C and related provisions from ₹1.5 lakh to ₹2.5 lakh per year.
What Is the Current Deduction Limit?
Under the existing law, taxpayers can claim deductions — including contributions to Provident Fund (PF), Life Insurance Premiums, Equity‑Linked Savings Schemes (ELSS), and other investments — for up to ₹1.5 lakh per year under Section 80C of the Income Tax Act. This limit hasn’t changed in over a decade, despite rising living costs and inflation.
Proposal to Raise the Deduction Cap
Experts and business groups like the American Chambers of Commerce in india (AMCHAM) have suggested that increasing this deduction limit to ₹2.5 lakh would provide meaningful tax relief, boost savings, and incentivise long‑term investments. If adopted, taxpayers could claim larger deductions on eligible investment and expense categories, lowering their taxable income and potentially reducing tax liability.
Why This Matters to Taxpayers
Here’s why raising the deduction limit is being widely discussed:
- More Tax Savings: A higher cap means more of your eligible investments and expenses can reduce your taxable income, leading to lower income tax bills.
- Encourages Savings & Investments: By expanding deduction opportunities, the government would encourage individuals to invest more in financial instruments that promote long‑term financial security.
- Relief for Middle Class: Middle‑income taxpayers often rely on 80C deductions to optimise their taxes; an increase would directly help this segment.
- Inflation Adjustment: The current ₹1.5 lakh limit has not kept pace with inflation and rising living costs, making the case stronger for a revision.
What Experts Are Saying
Budget analysts and tax experts believe that boosting the deduction cap would make the old tax regime more attractive — especially since the new tax regime has focused on simplified slabs and lower rates but has limited deduction options. They argue that increasing 80C to ₹2.5 lakh could rebalance incentives for taxpayers who prefer to save through traditional instruments.
Possible Impact on Tax Planning
If the deduction limit is increased:
- Individuals with higher investments in instruments like PPF, ELSS, and life insurance will benefit more.
- Retirement and education planning could become more tax‑efficient.
- Taxpayers may choose to stay in the old regime longer due to higher deductions, balancing out the simplicity of the new regime versus actual tax savings.
What’s Confirmed So Far
As of now, the government has not officially confirmed any change to the 80C deduction limit. The discussion remains in the realm of Budget expectations and expert recommendations, with the final decision to be announced during the Budget speech on 1 February 2026 by the Finance Minister.
In Summary
- The tax‑saving deduction limit (Section 80C) is currently ₹1.5 lakh.
- Ahead of Budget 2026, experts have proposed raising this cap to ₹2.5 lakh to give taxpayers greater relief.
- If adopted, this change could offer significant savings, boost investments, and reduce tax liabilities for many individuals.
- The proposal is part of broader taxpayer expectations around deductions, exemptions, and simpler regimes in the upcoming Union Budget.
Disclaimer:
The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of any agency, organization, employer, or company. All information provided is for general informational purposes only. While every effort has been made to ensure accuracy, we make no representations or warranties of any kind, express or implied, about the completeness, reliability, or suitability of the information contained herein. Readers are advised to verify facts and seek professional advice where necessary. Any reliance placed on such information is strictly at the reader’s own risk.
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