GOVERNMENT OF INDIA
Ministry of Finance
DEPARTMENT OF REVENUE
STARRED QUESTION NO *575
TO BE ANSWERED ON TUESDAY, THE 15TH MAY, 2007 25, VAISHAKA 1929 (SAKA)
Amendment of Income Tax Act
SHRI RAJEEV CHANDRASEKHAR
Will the Minister of FINANCE be pleased to state:-
(a) five years;whether Government have taken note of anomaly in the matter of investments that qualify for reduction from income under section 80 C of the Income Tax Act insofar as the investments made in Mutual Funds have a lock in period of three years whereas fixed deposits with the banks have a lock in period
(b) if so, whether Government propose to remove the anomaly by amending the Income Tax Act during the current Session; and
(c) if not, the reasons therefor?
(SHRI P. CHIDAMBARAM)
(a) to (c): A statement is laid on the Table of the House.
STATEMENT REFERRED TO IN REPLY TO THE RAJYA SABHA STARRED QUESTION NO.575 RAISED BY SHRI RAJEEV CHANDRASEKHAR REGARDING AMENDMENT OF INCOME TAX ACT.
(a) to (c) Section 80C of the Income Tax Act provides a deduction of upto Rs. 1 lakh from the gross total income to an individual or HUF, which makes investments in specified savings instruments or makes certain specific payments. The savings instruments include Equity Linked Saving Schemes (ELSS) floated by mutual funds and term deposit of a scheduled bank for a period of not less than 5 years. While the lock in period in the case of ELSS is 3 years, it is 5 years in the case of tem deposit with a scheduled bank.
Investment in ELSS is essentially an investment in equity while term deposits with a scheduled bank are debt instruments yielding assured returns. Therefore ELSS carries a significantly higher risk in comparison to a term deposit with a scheduled bank. In order to compensate ELSS for the higher risk, a relatively lower lock-in-period of three years has been provided.
In view of the above, there is no proposal to amend Section 80C of the Income-tax Act.