Financial year 2020-21 is about to end on 31st March,2021 and before we enter into the new Financial Year it is important that we ensure that all the eligible deductions, exemptions and rebates allowed to us by the Income Tax Act, 1961 are claimed and all the investments are made before the Financial year ends.
It is especially important to know that deductions, exemptions, and rebates are provided separately for each financial year and if you are unable to claim any deduction/ exemption/ rebate during a particular financial year then the same cannot be carried forward to the next financial year (except otherwise stated). Therefore, we need to plan our investments properly and claim them in right manner.
Irrespective of whether you take these steps in the start of the year or the middle of the year or at the end of the year – you would be allowed tax benefit for the same. Therefore, in case there is anything which you missed out on, you can still do it and reduce your tax liability before 31st March 2021.
1. File pending income tax returns
If you missed the due date for filing income tax returns for the previous years, you can still file a belated return of income tax. The last date for filing income tax return for Financial Year 2019-20was 31st July2020. However, belated return of income tax for Financial Year 2019-20 can still be filed till 31st March 2021 with late payment.
If the income was less than Rs. 5 Lakhs in FY 19-20, the late payment fees would be Rs. 1,000 whereas if the income was more than Rs. 5 Lakhs – the late filing fees would be Rs. 10,000.
2. Invest to save Tax: - Section 80C Deductions of Rs. 1,50,000
March 31 is around the corner, which means hardy a week for completing your tax-saving exercise for the financial year 2020-21. If you have not invested in the specified instruments for which deduction is allowed under section 80C, the same should be done now. Section 80C allows for a Deduction of Rs. 1,50,000 and these are one of the most popular and most effective form of deductions.
3. Equity Linked Saving Scheme (ELSS)
It is a category of tax saving mutual fund that invest most of their portfolio in equity. Therefore, under this scheme investors get rid out of tax liability and earn better returns.
ELSS is one of the foremost best option to invest when it comes to tax conscious assessee because it does not only save taxes but also gives good amount of returns.
Under this scheme you can earn returns in between 15% -18% p.a.
*Income tax benefit up to Rs 46,800/- per annum according to Section 80C on an Investment of Rs 1.5 Lakhs.
4. Public Provident Fund (PPF)
A government-guaranteed investment option – Public Provident Fund or PPF provides fixed returns along with tax benefits under section 80C. Individuals can open a PPF account at banks or at post offices. It has a lock-in period of 15 years; however, one can extend the duration of the account by a block of 5 years.
Under this scheme, you can get returns in between 7% - 8% p.a.
Note: PPF loans can be availed against the account, amidst the 3rd and 5th financial year (from the date of opening the PPF account).
5.National Pension Scheme
Under National Pension Scheme, you can claim deduction upon contributions made to pension fund account. Under this scheme, you can return in between 12% - 14% p.a. and the lock-in period is till retirement. Under this scheme you can claim deduction/exemption in three different subsections of section 80CCD
Under section 80 CCD (2), you can claim deduction upon amount which contributed by the Employer to National Pension Scheme. The taxpayer can claim maximum deduction of 1.5 lakh under section 80 CCD (1) & 80 CCD (2).
additional deduction of 50,000 you can claim under section 80 CCD(1B)
The maximum deduction you can claim under section 80 CCD is 2 lakhs.
6. Senior Citizen Saving Schemes (SCSS)
Introduced by the Government of India, the main objective of the Senior Citizen Saving Schemes (SCSS) is to provide an assured return (paid every quarter) to senior citizens.
This scheme is best known for its guaranteed regular flow of income, safety of investment and tax benefits. The SCSS is available at post offices and certified banks across the country. The lock-in period for this scheme is five years; however, it can be extended by three more years. Under this scheme, you can get returns upto 8.7% p.a.
This scheme can be availed with a minimum deposit amount of Rs. 1000.
Investments made under SCSS are eligible for tax deduction under section 80C of the Income Tax Act. Portability of the account from one bank to another is available.
Premature withdrawal is allowed.
*Retirees in the age group of 55-60 years who have opted for Voluntary Retirement Scheme (VRS) or Superannuation are eligible to avail this scheme.
7. Unit Linked Insurance Plans (ULIPS)
When you make an investment in ULIP, the insurance company invests part of the premium in shares/bonds, etc., and the balance amount is utilized in providing an insurance cover. Hence, ULIP is both an insurance policy and an investment. It provides life insurance cover, investment opportunities, and tax-saving benefits under section 80C of Income-tax act. The minimum locking period is 5 years. With regular premium payments, you can enjoy the benefits of wealth creation for your loved ones.
Under this scheme, the returns vary from plan to plan.
• You are required to pay the entire premium amount as a lump sum at the beginning of the policy term.
• You can switch your portfolio between debt and equity-based on your risk appetite and market performance.
• It offers stable performance or low risks or both.
8. Additional Deduction of Rs. 50,000 for Investment in NPS Account
The Finance Minister in the Budget 2015 announced additional deduction of Rs. 50,000for Investment in NPS Account. This Deduction is allowed under Section 80CCD and is over and above the deduction of Rs. 1,50,000 mentioned above.
Very few taxpayers are aware of this deduction as this provision is introduced recently. However, this is a useful deduction as it not only provides for tax deduction but also helps in planning our retirement.
9. Save Tax under Section 80D, Section 80DD & Section 80DDB
The Income Tax Act also allows deduction of the expenditure incurred on the medical premiums and health checkups done for our self as well as for the family. Amount of deductions differs based on conditions mentioned below.
10. Save taxes by donating for a good cause (80G).
A donation made for charity or philanthropic purpose can be claimed for tax deductions. This includes contribution to National Relief Fund, which can also be claimed as per Section 80G. Some donations are eligible for 100% deduction while others are eligible for 50% deduction, depending on the category in which the donations were made. If you are left with additional corpus and you would like to utilize for philanthropic purposes, this is the best time as it will also help you to save taxes.
Note:- Only donations made to institutions registered under section 80Gof Income Tax Act, 1961 is eligible for deduction. Receipt of donation needs to be preserved as we need to enter the details while filing the income tax return.
11. Submit Investment Proofs to your Employer(For Salaried Employees)
If you are a salaried employee, you are required to submit investment proofs to your employer before the financial year ends. Delay in submission of investment proofs to the employer may lead to excess TDS being deducted on your Income. Although you can claim refund of the excess TDS deducted at the time of filing of income tax returns, it is still better to timely submit the investment proofs to your employer.
Apart from submitting investment proofs to the employer, you are also required to submit the necessary proofs for claiming HRA Exemption, LTA Exemption, etc. Please note, since there are allowances exempt u/s 10 of Income Tax Act, 1961 and are granted to an employee by an employer, it cannot be claimed while filing your tax return unless your employer has granted it to you and the same is shown in Form 16 which is issued to you by your employer.