The Finance Ministry extended the deadline to make tax-saving investments from March 31 to June 30, 2020, for the financial year (FY) 2019-20. Therefore, if you have not made enough tax-saving investments for FY20 yet, you still have the opportunity to do so.
The Finance Ministry issued fresh guidelines about the extended deadline in the second week of April. As per them, the taxpayers having subscribed to Sukanya Samriddi Yojana (SSY) and Public Provident Fund (PPF) can invest their savings in these accounts, which was not possible during the lockdown period.
Furthermore, if you did not make the minimum contribution towards your PPF and SSY accounts by March 31, the penalty or revival fee can be waived off if you make such contributions by June 30. Also, the PPF accounts that mature on March 31 (including the one-year window to extend) can be extended before June 30.
You can make a deposit only once into PPF or SSY accounts during this extended period. Also, you cannot invest more beyond the ceiling placed on PPF and SSY accounts. The requirement is to provide an undertaking stating that you are not exceeding the prescribed limit when you are investing in this extended period.
If you have already made enough tax-saving investments or have exhausted your Section 80C limit, you can opt to claim deductions on tax-saving investments that you are going to make (during this extended period to make tax-saving investments for FY20) in FY21. The choice is yours.
You may consider investing in the following Section 80C options to save taxes for FY20:
Equity-Linked Savings Scheme (ELSS) is the best investment option under Section 80C. ELSS mutual funds have the potential to offer returns in the range of 12-15% a year, the highest among all tax-saving options. It also comes with a lock-in period of just three years, which happens to be the shortest of all Section 80C investments. Therefore, by investing in ELSS, you not only save on taxes but also accumulate wealth over time. The current market scenario is ideal to invest in ELSS mutual funds as the NAV of most funds has fallen to their multi-year lows. You can enter the market now as they are at their fresh low and you get the benefit of scale when markets start shooting up.
National Savings Certificate (NSC) is one of the most secure investment options. You can invest in NSC through a post office. The scheme offers an attractive rate of interest, much higher than that of a regular savings bank account and fixed deposits. NSC comes with a lock-in period of five years, and no premature withdrawals are allowed. You need to invest a minimum of Rs 500 a year while there is no ceiling on the amount that can be invested. NSC is currently providing returns at a rate of 6.8%, and the government would revise it periodically depending on various economic factors.
Investments made in five-year Post Office Term Deposit (POTD) accounts are eligible for tax deductions under Section 80C. It is offered by India Post, and you can open an account at the nearest branch. POTD offers the much-needed flexibility, as it allows you to transfer your account across all post offices in the country. You can invest as low as Rs 200.
IV) Other options
Apart from the options mentioned above, you may also consider investing in five-year tax-saver FDs, National Pension Scheme (NPS), Senior Citizens Savings Scheme (SCSS) (if eligible), LIC policies, and Unit-Linked Insurance Plans (ULIPs). Apart from that, you may also consider purchasing a medical policy as the premiums paid towards these are eligible for tax deductions. Apart from making investments, you may also save taxes by making donations to eligible funds such as the PM CARES Fund.
The government notified Sahaj Form or ITR 1 Form back in January 2020. It was reissued later as the government extended the deadline for taxpayers to make tax-saving investments for FY20 until June 30. It now requires taxpayers to declare their investments made between April 1, 2020, and June 30, 2020. This declaration is to be made in Schedule DI (Details of Investment). This includes all eligible tax-saving investments and donations made during the said period.
The lockdown restrictions that were placed in order to prevent the spread of coronavirus infection led the government to extend the deadline to make tax-saving investments for FY20. If you have not saved enough taxes yet, then you still have the opportunity to do so. Be wise and make suitable tax-saving investments. Doing this would not only help you save taxes but also build wealth over time.
(The author is Founder and CEO, ClearTax)