Tax saving is one of the incentives that encourages people to go for long-term investments. Although one shouldn’t invest only to save tax but also to meet his/her financial goals, but taxes saved through tax-saving investments provide instant return as per the tax bracket in which the investor falls.
For example, a person in the highest tax bracket may get 30 per cent return (excluding cess and surcharge, if any) in the form of tax saving / refund in the same year, in which the investments are made. Similarly, a person in the 20 per cent tax bracket may get an instant return of 20 per cent (excluding cess), which is a big incentive to motivate a taxpayer to invest.
However, many investors failed to make their last-minute tax-saving investments for the Financial Year (FY) 2019-20, as the year ended amid the nationwide lockdown that was imposed to contain the spread of highly contagious Novel Coronavirus COVID-19.
To provide investors an opportunity to make up the shortfall in their investment targets, the deadline for tax-saving investments has been extended from March 31, 2020 to June 30, 2020.
Although the deadline for tax-saving investments has been extended for FY 2019-20 to June 30, 2020, however, as per the Income Tax Return (ITR) Forms, to get income tax benefits, tax-saving investments made during the extended period (i.e. from April 1, 2020 to June 30, 2020) under any section can’t exceed the investment made under the respective section till March 31, 2020.
So, according to Schedule DI – Details of Investment provided in ITR-1 (Sahaj) and ITR-4 (Sugam) – the two ITR Forms released so far – if a taxpayer didn’t invest under any section for tax-saving investments till March 31, 2020, he/she won’t get any tax benefits on fresh investments made during the extended period.
Moreover, even if some investments have been made within the original deadline of March 31, 2020, tax benefits on additional investments made during the extended period will be available only up to the level of investments made till March 31, 2020.
For example, if a person has invested Rs 50,000 u/s 80C till March 31, 2020 and another Rs 1 lakh between April 1, 2020 and June 30, 2020, out of the Rs 1 lakh investments during the extended period, he/she would claim only Rs 50,000 for tax saving purpose u/s 80C.
So, for pure tax saving objective, investments made during the extended deadline may not be very useful, but it provides golden opportunity for genuine investors, who missed their investment targets due to the lockdown especially in the schemes having upper investment limit in a financial year, e.g. Public Provident Fund (PPF) and Sukanya Samriddhi Yojana (SSY).
It is because, out of the total limit of Rs 1.5 lakh each in the two schemes, if an investor able to Rs 1 lakh each in PPF and SSY till March 31, 2020, the extended period provides him/her a golden opportunity to meet the investment targets by investing Rs 50,000 each in the two schemes.
Otherwise, it would not be possible for the investor to make up the investment shortfall for FY 2019-20 by investing Rs 2 lakh each in PPF and SSY during the next financial year, as it will exceed the permissible limit of Rs 1.5 lakh in a financial year.