S Murlidharan

Time to save on tax

S Murlidharan | Updated on April 08, 2020

Ordinance to extend deadlines gives some relief

The Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 was promulgated on March 31, in the midst of the coronavirus crisis. As far as income tax provisions are concerned, the ordinance extends dates set by the Income Tax Act for begetting tax benefits to June 30, with the hint that it could be further extended if the crisis does not abate.

Thus, one can buy a National Savings Certificate or place a five-year deposit with a scheduled bank any time before June 30 to make the grade under Section 80C. The same holds true for health insurance premium under Section 80D. Likewise, if one intends to use the bond route to avoid long-term capital gains tax under Section 54EC, the six-month deadline to do so from the date of transfer of the original asset now expires on June 30, not March 31.

This thaw in the attitude and deadlines is so convenient that one is tempted to clamour for its permanent institutionalisation. To wit, why should one be expected to rush before the financial year ends to make Section 80C investments, when the deadline for filing income tax returns is a good four months away? When one can buy or construct a new house on or before the due date of filing income tax return in order to get exemption under Section 54, there is no reason why the same latitude cannot be given under Section 80C.

The ordinance is ambivalent about the investments made in April-June 2020. For example, if one places ₹1.5 lakh each on two different dates during this period as fixed deposit for five years with a scheduled bank, the intention obviously is to claim Section 80C benefits for both 2019-20 and 2020-21. A clarification in the ordinance would have preempted needless and unseemly litigation in this regard, should an assessing officer think otherwise.

The ordinance also aims to get maximum donations for the PM-CARES Fund by providing for a 100 per cent deduction from gross total income for such donations. Neither the qualifying limit of 10 per cent of the total income nor the further paring down of the actual deduction to 50 per cent of the qualifying amount will apply. This is a good gesture in these troubled times.

But the devil is in the details. Suppose a person makes a hefty donation of ₹100 crore to PM-CARES on June 1 but finds that for FY20, his gross total income is only ₹50 crore. In this case, he should be allowed to claim ₹50 crore each in 2019-20 and 2020-21. Again, a clarification would have foreclosed possible dispute.

Likewise, Section 112 (tax on long-term capital gains other than from securities traded in Indian bourses) and 112A (tax on long-term capital gains through Indian bourses) need to be amended immediately if the government doesn’t want the PM-CARES donors to be disappointed. Both the sections say that from such LTCG, no Chapter VI-A deduction would be allowed. Section 80G falls under this chapter. So what is the bottom line?

Suppose an industrialist earns ₹100 crore as LTCG from selling shares in BSE in 2019-20. As per Section 112A, ₹1 lakh is exempt. On the remaining ₹99.99 crore, he has to pay a 10 per cent tax. ie ₹9.99 crore. He might donate ₹10 crore to PM-CARE Fund. But, he will not receive the subsequent benefit unless Section 112A is suitably amended.

Last but not the least, the unseemly controversy over the discriminatory treatment meted out to donations to PM-CARES Fund and Chief Minister’s Relief Funds could have been avoided. A person hailing from Tamil Nadu might want to donate to the Tamil Nadu Chief Minister’s Relief Fund. There is no reason why he should receive a lesser tax benefit vis-à-vis the PM-CARES Fund.

The writer is a Chennai-based chartered accountant

Published on April 08, 2020

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