Your Checklist On Taxes For The Financial Year End!

We are just a few days to go before this financial year (2019-20) comes to a close. Though you have time till July 31st, 2020 to file your income tax returns, there are a number of activities that you need to do by March 31st, 2020 to claim the benefits in this assessment year (AY 2020 – 21). The finance minister came out with a series of extensions in dates till June 30th, 2020; but this is restricted mainly to tax saving investments.   Thus, you may have a bit of a breather on your tax saving investments.  Here is a checklist of items that you should go through to make sure that you have availed all the tax benefits available under different provisions of the Income Tax Act.

 

  • Set off your capital gains for the year with the losses:  If you do have capital gains for the year upto January 2020 when markets were relatively buoyant, you would have a number of stocks or even mutual funds that would be showing losses.  You can book some losses and set off the capital gains. You would want to optimise your capital gains in a difficult year. Do check if you have exit loads on your mutual funds before booking the losses.  This needs to be executed by March 31 for one to avail of the benefit.
  • Section 80C: You can claim deduction of up to Rs 1.5 lakhs from your gross taxable income by investing in schemes eligible u/s 80C. These schemes are EPF, VPF, PPF, NSC, tax saver bank FDs, life insurance premiums, mutual fund ELSS etc. Tax payers who are not getting a salaried income and not having PF and other tax saving investments must make sure that they avail maximum benefits. Senior citizens and parents of girl children can claim deductions by investing in Senior Citizens Savings Scheme and Sukanya Samruddhi Yojana subject to the overall Rs 1.5 lakhs 80C limit. Investors paying home loan EMIs can claim deduction for principal payments made during the financial year. Benefit extended till June 30th.
  • Section 80D (Medical insurance): You can claim Rs 25,000 of additional deduction for medical insurance premiums for yourself and your family (seni or citizens can claim up to Rs 50,000). You can claim a further deduction of Rs 25,000 for medical insurance premiums of dependent parents (Rs 30,000 if your parents are senior citizens).  Benefit extended till June 30th.
  • Section 80CCD (NPS): You claim additional Rs 50,000 deduction, over and above Section 80C limit of Rs 1.5 lakhs, by investing in National Pension Scheme. You can claim total deduction of Rs 2 lakhs by investing Rs 1.5 lakhs u/s 80C and Rs 50,000 in NPS. Benefit extended till June 30th.
  • Section 24 (Interest payment on home loan): You can claim up to Rs 2 lakhs deduction for interest payments in your home loan EMI for self-occupied house. If you are paying home loan EMIs for a let out house, the loss is restricted to Rs 2 lakhs in a financial year.
  • Section 80E (Interest payment on higher education loan): If you have taken loan for your, spouse or children’s higher education, then the entire interest payment can be claimed as deduction from your gross taxable income.
  • Section 80G (donations to charities): Donation made to tax exempt charities is allowed to be claimed as deduction at the rate of 50% or 100% (of the contributed amount) depending on the charity and as per approval granted by prescribed income tax authorities.

 

  • Check your surcharge bracket:  You maybe able to claim exemptions/deductions and set off your losses to reduce your net income to below the surcharge brackets (Rs 50 lakh / 1 Cr / 2 Cr / 5 Cr) if your income is on the border.  Plan before March 31st, because only tax saving investments are extended till June 30th.

 

  • Pay Advance Tax by March 31st: Tax payers who have income from other sources (e.g. rent, FD interest, capital gains etc) should make sure that they pay advance tax by March 31st, 2020. If you have worked in two different companies, you are likely to have to pay additional taxes for the year when you consolidate the two form 16s. If do not pay Advance Tax on time, you will have to pay interest @ of 0.75% per month of delayed tax payment (reduced from 1% per month for the period upto June 30th), even if you file your IT returns on time. For example, if your tax obligation over and above tax deducted at source (TDS) on March 31st is Rs 5 lakhs, you will have to pay Rs 16,250 as interest if you are filing your ITR and paying tax on July 31st

Summary

You can save a lot of money in taxes by availing the benefits available under different provisions of Income Tax Act. In this article, we have shared with you a checklist of items that you should review and make sure that you get maximum benefits. In addition to the tax savings avenues shared in this article, there may be other depending on your specific situations. If you need help with your tax planning feel free to email us at contactus@righthorizons.com .

Tips to move from employment to entrepreneurship

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Anil Rego, Founder & CEO of Right Horizons Financial Services, highlights certain things to be kept in mind on the financial front while advancing from employment to startup mode.

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Should you invest in NPS?

Should you invest in NPS?

National Pension Scheme (NPS) is a retirement scheme. You can contribute to it voluntarily and build a corpus. This will be invested in the markets and the returns will get added to the corpus. It is a scheme to ensure pension post retirement.

Source: http://www.npstrust.org.in. NAV as on 31st Jan, 2019

Performance of NPS Schemes

How have NPS schemes fared?

NPS schemes (Scheme E) that invest more than 50% in stocks have not fared well in the short-term as the market has been volatile. On the other hand they have performed well for the longer term.

NPS schemes that invest in government securities

(Scheme G) have performed well both in short-term and long-term.

As per recent changes, the investment in equity can go up to 75% in active subscription for non-government subscribers. This means potential to earn even higher returns and beat inflation is possible.

Taxation

As per the new proposal, 60% of the total amount that is allowed to be withdrawn after the age of 60 will be fully tax exempt from April 1, 2019. The other 40%  has to be invested in an annuity plan for getting regular pension payouts.

The new proposal makes it similar to products such as PPF which also does not have any tax on withdrawal as per schedule.

Investment up to an additional amount of Rs. 50,000 can be claimed as deduction if invested in NPS apart from 10% that qualifies for deduction under Section 80CCD. But this benefit comes with a clause of a 3-year lock-in period unlike other products such as EPF or PPF.

Liquidity

You cannot exit from the product anytime you wish. Premature withdrawal is allowed under certain conditions –

  • You should be an NPS subscriber for at least for 3 years.
  • The withdrawal amount should not exceed 25% of the contributions made by the subscriber.
  • Withdrawal can happen only a maximum of three times during the entire tenure of subscription for specific reasons such as higher education or marriage of children, purchase or construction of the residential house (in specified conditions) and for treatment of critical illnesses.

The annuity product that you have to invest in may not be the product you want to buy. Usually annuity products have low returns. So NPS is a partially liquid investment.

Conclusion

NPS has become a more attractive product as – 

  • You can invest up to 75% in equity and
  • There are options for partial withdrawal

NPS is at a disadvantage as –

  • It involves a compulsory purchase of annuity product
  • Returns from annuity product are taxable.
  • You have to bear risks such as credit risk and low returns in case of Schemes G and C that invest in government securities and corporate debt respectively and market risks in case of Scheme E

You can allocate a part of your investment portfolio to NPS but ensure that you have a combination of equity mutual funds, debt mutual funds and PPF to have a well-diversified retirement corpus.

Key Takeaways    
  • As per the new ruling,  the NPS withdrawal  of 60% is tax-free.
  • NPS returns (especially of the equity schemes) can beat inflation if market conditions are appropriate
  • Invest in different products such as EPF, PPF, equity funds, debt funds and NPS to have a diversified portfolio that can give you the best returns.

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