Sources close to budget making exercise told Deccan Herald that the limit is likely to be raised in order to spur savings.
Income Tax payees under section 80C, 80CCC and 80CCD of the IT Act can claim total deduction up to Rs 1 lakh a year by investing in various saving instruments like Public Provident Fund, Employees Provident Fund, National Saving Certificates, five year bank deposits and life insurance premium.
Besides these, education expenditure (tuition fees) up to Rs 12,000 per child (up to two children) and other investments like Equity Linked Saving Schemes (ELSS) floated by mutual funds are also eligible for standard deduction.
Savings list
Last December, the government expanded the list of savings and investment that qualify for deduction under 80C of IT Act by including five-year post office time deposits and the Senior Citizens Savings Scheme.
In the run-up to the Budget Finance Minister P Chidambaram has received several memoranda seeking a further hike in the limit.
The finance ministry has also received suggestions from tax experts who have pointed out that since so many savings and investment options are clubbed together to get a cumulative standard deduction upto Rs 1 lakh to calculate taxable income, the existing ceiling appears to be quite inadequate.
Some of the memoranda have suggested increasing deductions under Section 80C of the IT Act to Rs 1.50 lakh. It is learnt that the Tax Research Cell (TRC) of the budget division of the ministry, after examining the memoranda, favours an increase in the standard deduction limit.
Another compelling factor for the likely raise in the limit is that the Sixth Pay Commission is widely expected to recommend a substantial hike in the government staff salaries, sources said.
The commission has been mandated to submit its recommendations by April this year.
As average salaries are likely to go up, the finance minister could encourage tax-payers to park some of their surplus income in tax-saving instruments, sources said.