COVID-19 tax-saving extension: Here are the key operational aspects

The intention of the government is to allow you to make investments to your PPF and NSC accounts, five-year fixed deposits etc. for the previous FY 2019-20. The government has released a Taxation and Other Laws Ordinance, 2020 to give effect to this move. An ordinance means that this does not have to be approved by the Parliament immediately and is a law automatically. As per the ordinance, for all the deductions from Section 80C to Section 80GGC, wherever a due date for making a payment or investment has not been met, it can now be made by  June 30, 2020. This is in effect a blanket extension for all due dates where a payment is required to be made for claiming a deduction. Therefore NPS deposits (Section 80CCD(1B) and Section 80C), expenses on medical treatment of differently abled dependant 80DD), and everything else that falls between the sections 80C to 80GGC are now eligible for being claimed in the earlier FY, where payment/investment is made in Q1 2020.

This extension has also been allowed for claiming capital gains exemption from Section 54G to Section 54GB. Therefore any investment, deposit, payment, acquisition, purchase, construction or any similar action, which was required to be made for the purpose of claiming exemption as per the above sections, can now be made until June 30, 2020. For example, investment in capital gains bonds must be made within six months of the date of sale of the asset, which also now stands extended if it wasn't met. Purchase or construction of a house property or deposit in a capital gains account scheme can be made by the due date of filing return anyways.

Operational aspects 

Several taxpayers tend to take decisions related to their tax saving in the last few days of March. It is during this time that large investments are reported in ELSS of mutual funds; several make a beeline to make PPF, SSY deposits at banks, many insurance policies are bought. While the government has extended the timeline, it may pose certain practical challenges. Banks may have to align systems to accept deposits for a previous financial year. For example, in the FY 2020-21, you may have two entries reflecting in your PPF bank account, one pertaining to investment for FY 2019-20 and the other for FY 2020-21. Usually PPF banking systems do not accept cheques or deposits, once the maximum limit of Rs 1.5 lakh is breached. Banks will also have to make suitable changes to ensure that NPS deposits are accepted for the next FY.

While section 80D may be allowed, it is not possible to pay for a health policy now to cover the period which has already elapsed. A policy payment made now will only cover the upcoming period. And, therefore, payments made towards a health insurance policy between April 1, 2020 and June 3o, 2020 shall be eligible for claiming deduction for FY 2020-21. Such a policy premium must only be claimed once between the two financial years. Therefore, a change in ITR forms for filing income earned in FY 2019-20 may be made to reflect investments done in Q1 2020. Similarly, a lot of taxpayers may be making contributions to the PM National Relief Fund or PM Cares Fund (new name). Section 80G allows 100 per cent deduction for the amount contributed to this Fund. All contributions made between April 1, 2020 and June 30, 2020 will be eligible for deduction for only one FY under section 80G, as already specified under section 80G(5A).

Also note that while taxpayers may be able to make such investments in the coming quarter, employers are not going to make any adjustments to include your tax saving for FY 2019-20. They are bound by law to deduct TDS as required, for the FY 2019-20, based on information they have already collected from you. Therefore, for any investments made later, you will have to claim a tax refund by filing your income tax return.

(The writer is founder and CEO, ClearTax)