Proposal for Raising Sec 80C Deposit Limits to raise Cheap Development Funds for the Government

The basic Recommendation is  : Raise  the present exemption limit of  Sec 80C deposits  from the current Rs. 1.50 lakhs  to  Rs. 25 lakhs  as under :

a)    Rs. 1.50 lakhs can be deposited in any of the currently available avenues like PF, PPF, LIC, FDs of 5 years tenure and longer  etc.  (i.e. no change proposed)

b)    Deposits beyond Rs.1.50 lakhs upto Rs. 25 lakhs  can only be made in PPF  under the following provisions :

1.    For deposits from Rs.1,50,001 upto Rs. 5,00,000/- the interest rate paid in PPF deposits will be  2 percentage points less than the declared PPF rate for that year (which is applicable to the deposit of the first Rs.1.50 lakhs)

2.    For deposits from Rs.5,00,001 upto Rs. 10,00,000/- the interest rate paid in PPF deposits will be  5 percentage points less than the declared PPF rate for that year (which is applicable to the deposit of first Rs.1.50 lakhs)

3.    For deposits from Rs.10,00,001 upto Rs. 25,00,000/- the interest rate paid in PPF deposits will be  NIL.

c)    As can be easily understood,  the government will get a huge cache of cheap and almost NIL cost funds for the price of foregoing some taxable income (a fair part of which it was losing anyway because people may have been avoiding declaring the same to avoid / evade  paying income tax).

d)    Even more important,  the deposit of so much money in government coffers means that development works can be tremendously speeded up without the government running up huge deficits because these funds are coming at substantially lower costs.

e)    Finally,  the mopping of so much money from individuals will have a salutary effect on inflation that is fuelled by excess of money supply in individual hands.