Assocham on Tuesday urged the Union Government to review withdrawal of an investment benefit provision consisting of deduction from investing in long-term infrastructure bonds with a five-year lock-in period.
An amount of Rs 20,000 was eligible to be reduced from taxable income of an individual. In its pre-Budget representation to the government, The Associated Chambers of Commerce and Industry of India (Assocham) had suggested enhancement of this limit to at least Rs 50,000 per year to encourage and mobilize large investments in the infrastructure sector.
“It is paradoxical that despite a need to expand availability of such long-term funds, the scheme has been withdrawn abruptly,” said Assocham Secretary-General D.S. Rawat in a statement, requesting the government to immediately review this investment benefit provision and take a pro-active restoration.”
The deduction was introduced two years ago to encourage investors to put money into infrastructure bonds. The tax benefit depended upon the slab in which an individual belonged.
This was an additional benefit as compared to the Rs one lakh investment limit under section 80C of the Income Tax Act.
The section was applicable until 2011-12. Now there is no mention in the Union Budget for 2012-13, meaning that its term will end by this month-end. “This will be a blow to individual investors as it will actually push up their tax burden which will eat into the savings that they could have made due to the rise in basic exemption limit,” he said.
Mr Rawat said that investors should not confuse the increase in permission given to institutions to raise additional amounts of tax free bonds with this particular benefit. Those are tax free bonds where interest earned is not taxed while these are bonds that allow for deduction based on the amount of investment in bonds and interest income earned here is taxable.