Deductions under Income Tax Act is a reduction in the gross taxable income of the assessee which is a kind of a reward given to him for investing some part of income in specified instruments/schemes/practices/donations/expenses etc. Deductions vary in amount as different incomes are treated differently under various sections of the income tax act.
Due to effect of COVID-19 in India, several announcements were made by the Union Finance Minister vide Press Release dated 24.03.2020, regarding several relief measures relating to statutory and regulatory compliance matters across sectors and to give effect to those announcements, the govt has brought in an Ordinance on 31.03.2020, “Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020” in which one relief relating to the Direct taxes reads as “due dates for issue of notice, intimation, notification, approval order, sanction order, filing of the 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, etc., where the time limit is expiring between March 20, 2020 to June 29, 2020, have been extended to June 30, 2020.” Also, note that ordinance means that this does not have to be approved by the Parliament immediately and is a law automatically.
First, it’s important to understand that there is no change in the Financial Year 2019-20 and it has been ended like earlier, on March 31, 2020.
However, the date for making various investments/payments for claiming deduction under Chapter-VIA-B of IT Act which includes Section 80C (LIC, PPF, NSC, etc.), 80D (Mediclaim), 80G (Donations), etc. has been extended to 30th June 2020. Hence the investment/payment can be made up to 30.06.2020 for claiming the deduction under these sections for FY 2019-20.
Investments made under these sections in the period from 01.04.2020 to 30.06.2020 lies on the choice and prudence of assessee on whether to claim the same in FY 2019-20 or FY 2020-21 keeping in view other parameters of his income of both these years. But care should be taken that no double deduction across both years is claimed on the same investment.
Similarly, a lot of taxpayers may be making contributions to the PM National Relief Fund or special fund “Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES FUND)” which has been set up for providing relief to the persons affected from the outbreak of Coronavirus. Section 80G allows a 100 percent deduction for the amount contributed to this Fund. All contributions made between April 1, 2020, and June 30, 2020, will be eligible for the deduction for only one FY under section 80G, as already specified under section 80G.
However, some eligible expenses, like – employees mandatory contribution to EPF/NPS, child’s tuition fee, etc., the cutoff date will still be March 31, 2020, as the financial year will end on this date only.
Similarly, also note that while taxpayers may be able to make such investments in the coming quarter, employers are not going to make any adjustments to include your tax saving for FY 2019-20. They are bound by law to deduct TDS as required, for the FY 2019-20, based on information they have already collected from you. Therefore, for any investments made later, you will have to claim a tax refund by filing your income tax return.
While the government has extended the timeline, it may pose certain practical challenges. Banks may have to align systems to accept deposits for a previous financial year. For example, in the FY 2020-21, you may have two entries reflecting in your PPF bank account, one pertaining to investment for FY 2019-20 and the other for FY 2020-21. Usually, PPF banking systems do not accept cheques or deposits, once the maximum limit of Rs 1.5 lakh is breached. Banks will also have to make suitable changes to ensure that NPS deposits are accepted for the next FY.
So, it is indeed a relief as well as a golden opportunity in disguise for taxpayers to assess their income and deductions once again after the end of the financial year and do tax planning to maximize their savings while following Income tax provisions and rules.
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