In a bid to boost the falling savings rate, the government may consider increasing the income tax exemption limit on individual savings to Rs 1.5 lakh from the current Rs 1 lakh, reported Financial Express today.
The declining rate of savings and investment has been a cause of concern for the government of late.
The savings rate have been falling since 2007-08 and Finance Minister Pranab Mukherjee has indicated his desire to raise the exemption limit, an official who did not wish to be named told FE. According to the article, the savings rate is estimated to have fallen sharply by as much as 500 basis points in the current fiscal year from its peak of 36.9 percent of GDP in 2007-08.
Earlier, the government had raised rates on small saving schemes and introduced other incentives to arrest the outflow from the National Small Savings Funds.
Persistently high inflation rates over the last two years is the main reason for the fall in savings rate as it eroded disposable incomes. However, if this proposal is implemented it should boost the savings in the household sector, which accounts for as much as 70 percent of the total savings in the country.
Apart from just pleasing the average Indian, this will also appeal to opposition leaders who are pitching for a hike in the tax exemption limit on savings currently available under Section 80 C of the Income Tax Act.