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How Does The Extension In Tax Saving Deadlines Affect Tax-Payers?

How Does The Extension In Tax Saving Deadlines Affect Tax-Payers?

Tax saving plans

The Central Board of Direct Taxes (CBDT) has announced an extension of the deadline for making tax-saving investments for the Financial Year (FY) 2019-20. The deadline has been moved from 30 June to 31 July 2020, in order to provide relief to taxpayers amid the corona-virus pandemic. So, tax-payers now have more time for making investments in tax savings instruments to claim tax relief under various sections of the Income tax Act. In another notification, the government extended a few other tax compliance-related deadlines, including the extension of the last date for filing the ITR for FY 2019-20 till 30 November 2020. The deadline for linking of PAN card with Aadhaar has been extended further till 31 March 2021.

tax saving investment & compliance deadlines

How does this extension benefit tax-payers?

A lot of tax-saving activity happens at the end of the financial year, mostly in March, which is exactly when the country went into a lockdown. Therefore, this deadline extension is a big relief to tax payers who were anxious about missing the due date for making tax saving investments. In addition, it will definitely benefit those senior citizens and individuals who are not comfortable using online facilities to transact and are yet to complete their tax-savings for FY 2019-20.

While the extension is a means to relieve tax-payers, you can make the most of this extra time by investing in insurance policies for tax-saving and other saving schemes before the opportunity of earning higher interests slip out of hand, since the quarterly revision is expected to take place at the end of this period.

Where can you invest to save tax?

There are many tax-saving avenues, from investments to saving plans, for claiming deduction under the IT Act which includes sections 80C (LIC, PPF, NSC etc.), 80D (Mediclaim), and 80G (Donations) among others. It’s best to plan your investments depending on your lifestyle. Whether you are a single, happily married, or planning for kids, there are some great investments and insurance switches that you can make to ensure your life-goals are met. Therefore, while investing your money, keep the following points in mind:

1) Ensure everyone in your family has health insurance coverage. If they don’t, this is the right time to buy a base policy. You can buy a health insurance plan for parents that cover your dependants. And if you do have a health plan, consider top-up coverage to fully protect your finances against future medical expenses and hospitalizations. The premiums paid towards your health insurance policies will avail you deductions under Section 80D of Income Tax Act, 1961.

2) With the ongoing pandemic situation, there’s great uncertainty to life and it is a good idea to buy adequate term insurance. This would keep your dependents protected in case of an unfortunate happening. A comprehensive insurance policy like the iSelect+ Term Plan can offer tax benefits as per the prevailing Income Tax laws.

3) You can look at investments eligible for deductions under Section 80C with a Unit-Linked Insurance Plan. If you have a high appetite for risks, Invest 4G makes a great option that offers a dual benefit of an insurance cover and savings. Under the Invest 4G plan, tax benefits are available on premium paid under Section 80C and benefit received during Policy term under Section 10(10D) subject to conditions provided therein, as per the Income Tax Act,1961.

4) If you’re adverse to market risks, it would be best to invest in government-guaranteed schemes like Public Provident Fund or NSC. Plus, a five-year tax-saver Fixed Deposit can be considered if you wish to buy a low-risk lump-sum investment.

Lastly, this is a testing time for everyone, and donations to various charities may be warranted. Any donations made to eligible charities can get you tax benefits under Section 80G of the Income Tax Act,1961.

Speak to an insurance specialist now!

FAQs Related to Tax Saving

First of all, your gross total income is taken into account and all applicable deductions/exemptions are deducted out of it, the resultant amount is the net income, upon which the Income Tax is calculated, on the basis of income tax slabs that are announced each year in the Union Budget.

How much tax you can save depends on your financial portfolio and profile. The most common avenue for tax-saving is Section 80C, which allows you deductions up to Rs 1.5 lakh in your taxable income. The implication is that you can save up to Rs 46,800*in taxes in a year, depending upon the income tax slab you belong to. Similarly, other avenues like interest on loans, health insurance etc also provide deductions capped at a certain amount.

*Tax saving of Rs.46,800/- is calculated at the highest tax slab of 31.2% (including 4% Cess) for an individual assessee on life insurance premium of Rs.1.5 lakh, who is having taxable income upto Rs.50 lakhs.

You can choose from many investments that are tax-exempt: not an exhaustive list, but includes Equity Linked Saving Scheme (ELSS), Public Provident Fund (PPF), life insurance plans, Unit Linked Insurance Plans (ULIPs), Sukanya Samriddhi Yojana, Senior citizens Savings scheme, National Pension Scheme (NPS), tax-saving bank FDs.

First of all, make investment of Rs 1.5 lakh in investments instruments covered under Sections 80C to reduce your taxable income. Claim deductions for the interests paid on home loan and/or education loan if any. Get a health insurance policy and claim for other medical expenditure like preventive medical healthcare check-up, expenditure on rehabilitation of handicapped dependent relative, among others. Mainly, the idea should be finding out which tax saving avenues fit well with your larger financial goals and invest in them!

The maximum limit of investment that will reap the benefits of deduction from taxable income under Section 80C is Rs 1.5 lakh.

There is no limit to the number of tax-exempt investments one can have in a financial portfolio. However, it is important to note that there is a limit to how useful any instrument can be for the purpose. This is because the amount of deduction that can be claimed for specific instruments is capped at a maximum value. At the same time, keep your financial portfolio balanced so that it also provides safety, returns and liquidity.

First of all, make use of the Rs 1.5 lakh deduction allowed under Section 80C. This can be done by making investments in life insurance premium, Equity Linked Saving Scheme (ELSS), Public Provident Fund (PPF), Unit Linked Insurance Plans (ULIPs), Sukanya Samriddhi Yojana, Senior citizens Savings scheme, National Pension Scheme (NPS), among others.

Second, make use of the deductions available in respect of health insurance and other medical expenses. Under Section 80D of the Income Tax Act, 1961, a deduction of up to Rs 25,000 is allowed in a year in terms of the premium paid towards a health insurance policy of Self and your family i.e., Spouse and children. This can include preventive healthcare check-ups too upto Rs 5000/-. Under section 80D you can also claim additional deduction upto Rs. 25000/- (Rs. 50000 in case of senior Citizen) for health insurance of your parents.

Apart from Section 80C, various deductions and exemptions has been provided under the provision of Income Tax Act, 1961 like deduction under section 80D can be claimed for the payment of health insurance, deduction upto Rs 50,000 on home loan interest under Section 80EE. Any donations you make to charitable institutions are also allowed as deduction under Section 80G, subject to condition prescribed therein.

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