It’s Not Too Late To Save tax!

The deadline for making tax saving investments is 31 March. But, there is still time to adopt last minute tax saving tips to claims tax benefits offered by the Government. This article discusses some tax investment avenues which can be utilized before 31 March to lower one’s overall tax liability.

The most significant benefit is deduction under section 80C of the Income-tax Act under which investments in various savings instruments (public provident fund contribution/life insurance premium/national savings certificates/ 5 year term deposit with banks), repayment of housing loan and payment of tuition fees for children are eligible. Further, for those who are looking for attractive return as well as deduction over and above the limit of section 80C i.e. Rs. 1.5 lacs, contribution to the New Pension Scheme (section 80CCD (1B)) is appropriate. Apart from this, an Individual can make donations to charitable trusts and institutions and deduction under section 80G. Notably,  these deductions are allowed only on payment basis, i.e., if the investment/deposit  has to be actually made during the current financial year ending 31st March 2020 for  claiming benefit in the assessment year 2020-21. Most importantly, even if investments could not be reported to the employer  on time  (as per employer’s policy ) and as a result, the same is not getting reflected in the Form no. 16, , these deduction can be legitimately claimed by an employee while filing his tax return for the assessment year 2020-21. Also, specified professionals falling under presumptive taxation under section 44ADA (having a total gross receipts (‘Receipts’) not exceeding Rs. 50 lakhs) can claim deduction under Chapter VI-A ( 80C,80D etc.) Thus, even they can make investment in the eligible investment instruments by 31st March if they are yet to make these investments.

Apart from above, there are several other ways to lower tax burden. For instance, payment of Municipal tax before 31st March: Municipal taxes are allowed on payment basis. If municipal taxes relating to earlier years have been paid in the current financial year on or before 31st March, an Individual can also claim deduction for the entire amount.

Investments eligible for deduction under section 80C

Under Section 80C a wide range of tax preferences is available to an Individual. A salient feature of some of the tax saving investment instruments is as under:

Contribution to National Pension Schemes (Section 80CCD)

Investments under the NPS scheme, up to 10% of gross income will be eligible for deduction under Sec.80CCD (1). This Sec.80CCD (1) is part of Sec.80C limit. Hence, the maximum tax benefit one can avail is Rs.1,50,000. Employer’s deductions will be claimed by employees under Sec.80CCD (2). Apart with above two tax benefits, one can claim additional Rs.50,000 tax benefit under Sec.80CCD (1B). This is over and above Sec.80C limit. Further, 40% of total corpus is exempt. Balance 60% is also exempt, if invested in annuity.

Health Insurance Premium (section 80D)

Section 80D provides for deduction available for health insurance premia paid. An Individual can claim deduction in respect of premium paid on the health of himself or family or parent which is calculated as under:

• In case of the individual, Rs. 25,000 for himself and his family
• If individual or spouse is 60 years old or more the deduction available is Rs 50,000
• An additional deduction for insurance of parents (father or mother or both, whether dependent or not) is available to the extent of Rs. 25,000 if less than 60 years old and Rs 50,000 if parents are 60 years old or more.
• For uninsured super senior citizens (80 years old or more) medical expenditure incurred up to Rs 50,000 shall be allowed
• A deduction of Rs. 5000 will be allowed under this section for payment of preventive health check-up of either the individual himself or his family members which includes spouse, parents and dependent children.This deduction is NOT in addition to the deduction of Rs.25000/50000 stated above, but is included in the above deduction

Donations to charitable trusts and institutions and deduction under section 80G

An Individual who would like to claim further deduction from his gross total income can make donation to certain funds and charitable institutions. Generally, deduction is allowed @ 50% except in case of certain funds and institution such as PM’s Relief Funds, the National Children’s Fund, Swachh Bharat Kosh etc.

As can be seen that suitability of any tax saving instrument depends on various factors such as return, liquidity, risk appetite and tax treatment. Therefore, individual shall have to take into account all these aspects before making investment decision.

(Above are the views of Dr. Suresh Surana, Founder, Rsm Astute Consulting Group)

(Republished with Amendments)