How the Coronavirus Lockdown Has Facilitated More Time for Your Tax Planning

"Due dates for issue of notice, intimation, notification, approval order, sanction order, filing of appeal, furnishing of return, statements, applications, reports, any other documents and time limit for completion of proceedings by the authority and any compliance by the taxpayer including investment in saving instruments or investments for rollover benefit of capital gains under Income Tax Act, Wealth Tax Act, Prohibition of Benami Property Transaction Act, Black Money Act, STT law, CTT Law, Equalization Levy law, Vivad Se Vishwas law where the time limit is expiring between 20th March 2020 to 29th June 2020 shall be extended to 30th June 2020."

Extend the last date for income tax returns for (FY 18-19) from 31st March 2020 to 30th June 2020.

For delayed payments of advanced tax, self-assessment tax,  regular tax, TDS, TCS, equalization levy,  STT, CTT  made between 20th March 2020  and  30th June 2020,  the reduced interest rate at 9%   instead of 12 %/18 % per annum ( i.e. 0.75% per month instead of 1/1.5 percent per month) will be charged for this period.  No late fee/penalty shall be charged for delay relating to this period.

Aadhaar-PAN linking date to be extended from 31st March 2020 to 30th June 2020.

Vivad se Vishwas scheme - no additional 10% amount, if payment made by June 30, 2020.

An old friend Sumesh, who lives in Bangalore, called up to inquire about the lockdown situation in Mumbai. During the talks, he mentioned that he was confused about where to invest for tax saving purposes.

[Read:  Evading Income Tax May Soon Become Impossible. Here's Why...]

I immediately broke the news of the extended deadline for income tax returns to him. "From March 31, 2020, the date has been extended to June 30, 2020, due to coronavirus outbreak".

He sounded elated when he said, "Thank you for this update, now I'm less stressed and I can push my tax-related investment decisions ahead."

Immediately I pointed out to him "However, there are some limitations though..."

Sumesh asked, "What limitations?"

Here are the details...

• FY 2019-20 is 'not at all extended' till 30th June, the date has only been extended for some compliances

• Belated returns or Revised returns for the FY 2018-19 can be filed till 30th June

• In the FY 2019-20, income is taxable till 31st March only and not up to 30th June, i.e. for taxability of income financial year is considered till 31st March only

• Deductions under 80C, 80D, etc. can be claimed by investing till 30th June

• New LIC, Mediclaim, PPF, NPS, etc. policies taken till 30th June will be eligible for the deduction for the FY 2019-20

• Payment of Premium of old policies of LIC, Mediclaim, PPF, NPS, etc. due up to 31st March can be claimed as deduction even if paid till 30th June.

• Housing loan interest is eligible for deduction on an accrual basis, so interest accrued till 31st March will be eligible for the deduction in FY 2019-20. However, instalments due up to 31st March can be claimed as deduction even if paid till 30th June

"So basically, even if the date of filing ITR is pushed ahead, the end date is still March 31, 2020, in terms of income considered. Whereas investments done until June 30, 2020 to avail tax benefits will be considered for March ITR filings and for last year's delayed returns can be done till June end." Sumesh summarized it, interrupting me.

"Yes, that's correct!" and I quickly continued, "If you haven't thought of tax planning yet. This is the perfect opportunity to engage in this exercise of tax planning."

"Why should I do tax planning?" , he asked.

"Avoid procrastinating till the last minute to save tax, or trying to time the markets when it has crashed thinking you can earn big to save a lot of my money."

Last-minute ad-hoc investments will allow you to save tax for the time being but without actual long-term benefits. This approach to investing can affect your overall financial health. Instead, invest in a way that provides tax benefits and grows wealth over a long period."

"So then how should I go about?" Sumesh enquired

"Effectively, you can invest and simultaneously take care of tax planning. This is the primary reason Section 80C is one of the most sought-after Sections when it comes to tax planning."

Section 80C is the key section for the purpose of claiming tax sops because of the breadth of options it offers. Section 80C of the Income Tax Act provides a number of tax saving investment avenues, viz. Public Provident Fund (PPF), Life Insurance Premium, National Saving Certificate (NSC), 5-Year tax saver deposits, Sukanya Samriddhi Yojana, Equity Linked Savings Schemes (ELSS), and so on. Investments in these (along with a few others) qualify for a deduction up to a sum of Rs 1.50 lakh under Section 80C.

But in my view, instead of investing in an ad hoc way, if you select the tax-saving investment avenues per your risk profile, it might prove to be far a more meaningful exercise and may even assist you in financial goal planning.

To begin with, investors must find out how much (based on their incomes) they need to contribute towards the Section 80C kitty.

Once the investment amount is known, the next step is to get a check on the ongoing investments and contributions that are eligible for tax benefits.

Then the premium payments on existing life insurance policies must be taken into account.

Principles of financial planning like asset allocation and investing in line with one's risk profile should kick in at this stage. For instance, risk-averse investors should ensure that a greater portion of their tax-planning portfolio is held in assured return schemes like PPF, NSC and tax-saving bonds. Conversely, risk-taking investors can have a portfolio skewed in favour of market-linked avenues like tax-saving mutual funds (also known as equity-linked saving schemes - ELSS) and unit-linked insurance plans (ULIPs).

Given the current lockdown situation, investing via online platforms is convenient. As most of these options use technology-enabled platforms that allow investors to transact, make investments, do redemptions through online portals.

Online platforms are an easy and convenient way to facilitate investment needs. But one should also be wary of online frauds and refrain from sharing personal/confidential information that may put your finances at risk and cause you loss. Choose only the official websites for transaction purposes

Seek the help of an investment adviser if you require guidance.

He thanked me and we ended the call on a hopeful note of improvement in coronavirus situation.

Conclusion

Let me remind you, dear reader, the tax-planning exercise is not half as difficult or dreary as it is made out to be. All one needs to do is be methodical, seek advice, and the rest will fall into place. The current time of the pandemic has given you an opportune time to start if you haven't done it yet. Tax planning can significantly contribute to one's finances.

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Warm Regards,
Aditi Murkute
Senior Writer

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