Tax Tutorial: Kaushik Mukerjee

Final reminder on taxes

The current financial year ends in the next two days. But if one has not yet paid all his/her taxes and not claimed all benefits, it is time to do so.

After contributing to both the Employee Provident Fund (EPF) and Public Provident Fund (PPF), if you are still left to exhaust the Rs 1 lakh limit under Section 80C, you can invest the remaining in tax-saving schemes. For example, if your PPF contribution is Rs 70,000, there is a window for further investment of Rs 30,000 with tax-saving of Rs 9,270 for those in the highest tax bracket. But many might complete their Rs 1 lakh investment with EPF and would not be required to invest in any other instrument.

One may also utilise housing loan repayment. It may save additional fund outflow, too. However, you need to obtain appropriate evidence of the payment to ensure the tax benefit.

Investments in notified infrastructure funds of up to Rs 20,000 (Section 80CCF) can further reduce taxable income by an equivalent amount — saving Rs 6,180 in the highest tax bracket.

Under Section 80D, you can seek exemptions on premiums towards medical insurance for family and self. This would not only come handy at difficult times, but also save tax by reducing taxable income by Rs 15,000 and Rs 20,000 for premium paid for parents who are senior citizens, who are above 65 years.

Sale of capital assets such as land, buildings, etc, requires payment of capital gains tax. For assets held for over three years (long-term capital gains), benefit of indexation is available (under Section 48) for increase in cost inflation index from the year of acquisition to the year of sale. Sale of the capital asset in April would entitle higher cost step-up, reducing the capital gain tax.

On the other hand, if one has sold a long-term capital asset in the last six months, he can take the benefit of deduction under Section 54ED (up to Rs 50 lakh per annum) by investing in specified bonds, namely by Nabard and Rural Electrification Corporation, before March 31.

Salaried employees also need to file evidence of deposits made in tax-saving investments on time, for the employer to grant the eligible tax benefits in tax deducted at source (TDS), thereby saving from the wait to recover tax refunds. In other words, if one has saved taxes of Rs 15,000 via additional investments under Section 80C/CCF, it makes better sense to have lower TDS from salaries upfront than to claim the benefit in the tax return and wait for the refund to fructify after a year. Similarly, one can declare interest earned on other income to the employer to be included in income and TDS thereon from the March salary. It would save interest payment if one has missed to pay the advance tax on such income.

Businessmen or professionals can claim half-year depreciation on newly-acquired business assets, if they can put these to use by the month-end. For example, if a machinery worth Rs 4 lakh is commissioned on March 25 (instead of April 2), there would be a lower tax outgo of Rs 9,270 in the current financial year.

Failure to pay appropriate advance tax interest under Section 234B/C at one per cent a month. Even if one has not paid advance tax appropriately so far, payment by the month-end would save payment of interest under Section 234B. While there isn’t much time left, there can be few to-do’s for effective planning and compliance.

The writer is executive director, PricewaterhouseCoopers India. The views expressed are his own