It is important for taxpayers to understand the impact of the relaxations in income tax compliances announced by the government.
The closure of every Financial Year (FY) and the commencement of the next is the time when most individuals think about their income tax obligations. For FY 2019-20 things have become more complex given the lockdown situation. Investing to save taxes, filing belated income tax returns of FY 2018-19 or revising income tax return to amend or rectify an error in previously filed tax return for FY 2018/19 and budgeting for FY 2020-21, are some of the pressing issues for an individual taxpayer. It is important for taxpayers to understand the impact of the relaxations announced by the government.
The major relief has been in the form of extension of due dates for filing income tax returns belated or revised for FY 2018-19, and providing additional time for investing in tax relief eligible investments for FY 2019-20. The due date is now June 30, 2020 for all of this.
Let us see how this would help taxpayers.
1. Investments for the FY 2019-20
Individuals can now use the extended window up to 30 June, to make tax saving investments such as contributions to PPF, NSC etc and can claim benefits under Section 80C for FY 2019-20. Similarly, insurance premium payments for medical coverage for self, family and/or senior citizen parents, paid-up to the period ending 30 June 2020, are also available as deductions for FY 2019-20. Relaxation has also been provided to savings schemes such as PPF, Sukanya Samridhi, where specified minimal amount of deposit is to be made during each FY. Individuals who were planning to contribute to NPS but did not manage to do so by March 31, 2020, now have the opportunity to do so with the extended timeline.
2. Investments to minimise tax on capital gains
The extension of timeline also helps tax payers planning for investments to minimise taxes on capital gains, where the time limit for investment was expiring between March 20, 2020 and June 29, 2020. This is relevant for taxpayers having long-term gain arising on sale of capital asset in FY 2019-20, such as house property etc.
3. PM CARES
Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund) has been set up to provide relief to affected areas and people. The contributions made by individuals to this public charitable trust will be eligible for 100 percent exemption for income tax purposes. This will enable individuals to avail the opportunity of helping the nation as well as benefitting from a tax perspective. With the extension of time line, individual taxpayers now have the option to choose to avail the tax benefit for this, either for FY 2019-20 or FY 2020-21.
4. Repayment of Loans/ credit card dues
To provide respite in case of financial emergency, individuals can defer their repayment to banks on any type of loan such as home loans, personal loans, auto loans. Such delay would not be considered as default and the moratorium is for the period March 1 to May 31. The deferment will not hinder the credit rating of the borrower. However, the interest charges on account of deferment will not be waived off.
5. Belated or revised return
The due date for filing of belated tax returns for FY 2018-19 has been extended to June 30, 2020 from March 31, 2020. This could help individuals defer their tax payments to optimise on their cash flow. While interest is due to be paid on such delayed tax payments, the rate of interest is lower at 0.75 percent per month for this period, as against the regular interest rate of 1 percent per month.
6. Aadhaar-PAN linking
The government has also extended the due date multiple times with the latest extension date being March 31, 2020. Amid COVID-19 situation, this date has now been extended to June 30, 2020, beyond which individual’s PAN will be inoperative until the linking is done.
The extensions provided by the government are a good opportunity for individual taxpayers to look at their tax return situations, plan for investments and determine their tax liabilities. It is also a good time to plan for the next year’s taxes and review whether one should choose to be covered under the simplified tax regime or continue with the regular tax regime.
(By Saraswathi Kasturiranagan, Partner, Deloitte India; and Meenakshy G, Deputy Manager with Deloitte Haskins and Sells LLP)