Big Story | Income-tax and investment relaxations for individuals. What you need to know

The Covid-19 pandemic has thrown life out of gear for almost everyone on the planet, be it businesses, salaried individuals or the self-employed. Taking this into account, the Centre has been announcing a series of relaxations for income-taxpayers.

Other measures — such as giving moratorium on loans and allowing withdrawal of employee provident fund balance — have also been announced to ease the financial burden on individuals.

Let us take a closer look at what these relaxations mean for individuals.

Advance tax

Certain obligations under the Income Tax Act — such as payment of advance tax or depositing tax deducted at source — generally need to be completed before March 31, or in April.

As the nationwide lockdown started towards the end of March 2020, the government has given some leeway in payment of taxes in the form of advance tax and TDS by reducing the interest it will charge for delayed payment of such taxes.

For advance tax, the last date for payment for FY2019-20 (March 15, 2020) had already passed by the time the lockdown was announced. But if you have not paid up to 90 per cent of your advance tax liability by March 31, 2020, the interest charged on the balance due (under section 234B of the I-T Act) will now be at 9 per cent per annum instead of 12 per cent. This balance tax can either be paid before you file your return for 2019-20 or along with it.

Say, the total advance tax liability (after considering TDS) for 2019-20 was ₹1.5 lakh and you had only paid ₹1.2 lakh by March 15; also, you did not pay the balance ₹30,000 by March 31.

Ordinarily, on the balance ₹30,000, interest would be charged at 12 per cent per annum (1 per cent per month) or till the date you file your income tax return (along with payment of balance tax.) If you choose to pay the balance ₹30,000 before the date of filing your return, the interest would be charged from April 1, 2020, till that date.

Now, in both these scenarios, the interest will be charged at a lower rate of 9 per cent per annum (or 0.75 per cent per month).

But do remember, as of now, the Centre has reduced the interest payable only till June 30, 2020. So, if you pay the balance ₹30,000 after June 30, 2020, you could be required to pay interest at 12 per cent per annum for the balance period after June 30, 2020.

TDS

In the case of individuals (apart from those whose books are audited), TDS is applicable on: payments made to contractors and professionals in aggregate above ₹50 lakh; rent over ₹50,000/month paid to landlord; and amount of over ₹50 lakh paid to a seller for purchase of immovable property.

For a buyer of immovable property like land, a building or a flat, the TDS has to be deposited within 30 days of the month in which the tax was deducted. So, if the immovable property was purchased in March 2020, the due date for remitting the TDS and filing the requisite form would be April 30, 2020. Any delay in remitting the TDS amount (till June 30, 2020) would now have to be accompanied with an interest at 9 per cent per annum for the delay, down from 12 per cent earlier.

For TDS on other payments — to contractors and professionals, and rent to landlord (above ₹50,000/month) — the due date for remitting the TDS amount is the seventh of the next month. But for March 2020, TDS can be remitted by April 30, 2020.

For however long the TDS remittance to the government’s coffers is delayed, if this period is till June 29, 2020, the interest on delayed payment will be charged at 9 per cent per annum as against 12 per cent earlier.

Additionally, no penalty will be charged, nor will there be any prosecution against individuals who have delayed the payment of TDS, if it is paid by June 30, 2020.

Extension of due dates

In case you had not filed your income tax return for the financial year 2018-19 within the due date (August 31, 2019), and intended to file a belated return, the due date for filing it has been extended to June 30, 2020, from March 31, 2020. And if you had filed the income tax return within the due date but wanted to file a revised return, that due date has also been extended to June 30, 2020, from March 31, 2020.

For people who have deducted tax at source for any payments during January-March 2020, the TDS return was to be earlier filed by May 31, 2020. This due date has now been extended by a month to June 30, 2020.

The due date for linking your Aadhaar number with your Permanent Account Number has also been extended to June 30, 2020, from the earlier deadline of March 31, 2020.

The last date for applying to settle your income-tax disputes under the Centre’s Vivad Se Vishwas scheme has also been extended to June 30, 2020 from March 31, 2020.

Concessional TDS/TCS rates

Usually, at the beginning of a new financial year, many people file an application for concessional TDS deduction rates, under Section 197 for residents and Section 195 for non-residents. This application is processed through the Income Tax Department’s TRACES (TDS Reconciliation Analysis and Correction Enabling System) portal.

Once the lower TDS rate is approved, a certificate is issued that can be used to insist on lower tax deduction from those making payments. For example, professional services are subject to a 10 per cent TDS, but if the department issues you a certificate that shows that the TDS can be deducted at 5 per cent, that rate will be applicable for your professional fees.

This certificate is issued based on income projection contained in the application.

Now, because of the Covid-19 pandemic, the issuance of these lower TDS rate certificates are getting delayed. The department is working overtime to clear any applications for FY2020-21 filed in April 2020, at the earliest.

In case you have a similar certificate for FY2019-20, the department has extended its validity till June 30, 2020. The point to note here is that the extension is only for those holding such certificates for 2019-20. If you did not have one for 2019-20, you must apply at the earliest for the lower TDS rate.

Also, if you expect your income (and hence your tax outgo) for 2020-21 to be lower because of the pandemic, you will have to make an application for a lower a certificate through the TRACES portal.

Forms 15G and 15H

At the beginning of a financial year, many individuals (including senior citizens) usually submit form 15H (for senior citizens) or 15G to banks and other financial institutions.These forms are a declaration based on which banks and financial institutions will pay interest without deducting tax.

These forms are usually filed or submitted with banks and financial institutions as soon as the financial year begins, in this case, in the beginning of April 2020 for FY 2020-21.

But considering the lockdown imposed by the Centre, the validity of forms 15G and 15H submitted for 2019-20 has been extended to June 30, 2020. This way, those who are not liable to pay tax will not suffer tax deduction on their interest income.

Tax-saving investments and expenses

The time limit for making payments to claim deductions under chapter VI-A part B of the I-T Act has been extended from the usual date of March 31. So, if you couldn’t make tax-saving investments and expenses by March 31, 2020, to reduce your tax outgo for FY2019-20, the time limit has now been extended to June 30, 2020.

What this essentially means is that if you make tax-saving investments and expenses from April 1, 2020 to June 30, 2020, you can choose to show these for FY2019-20 or 2020-21. If you want to claim the tax break for FY2019-20, this has to be done while filing the income tax return for FY2019-20.

These tax-saving investments could be in units of mutual funds of equity-linked savings schemes, ULIPs (unit-linked insurance plans), National Savings Certificates (NSC), fixed deposits with a five-year term, NPS (National Pension Scheme), PPF (Public Provident Fund), home loan principal repayment, etc.

The expenses include medical insurance premium, life insurance premium and interest on loan taken for higher education.

Also, if you have made any contribution under Section 80G to charitable organisations and trusts, including the Chief Minister’s Relief Fund in your State or the PM CARES Fund, up to June 30, 2020, you can choose to claim a deduction from your 2019-20 income while filing your return.

The deadline extension till June 30, 2020, also applies to benefits under Sections 54 to 54GB of the I-T Act. Under these provisions, you can reduce your long-term capital gains on sale of a house by constructing or buying a new house, or by investing in NHAI or REC bonds. You can also take benefit of some of these sections to reduce your capital gains on sale of any other capital asset.

The time period up to which you can claim the deduction under these sections has been extened to June 30, 2020.

The Central Board of Direct Taxes has announced that it will make necessary changes in the income-tax return forms to allow you to declare such investments, payments and expenses till June 30, 2020. You will have to specify that those eligible payments and investments that you have made after April 1, 2020, and up to June 30, 2020, be considered for FY2019-20.

Provident Fund

The Centre, in an effort to ease the cash crunch for members of the EPFO (Employees’ Provident Fund Organisation), has allowed a non-refundable advance on the provident fund balance of a member. This amount is also tax-free.

The amount you can withdraw is the lower of three months’ basic pay + dearness allowance, or 75 per cent of the balance lying in your EPF account.

For instance, if your monthly basic pay + dearness allowance is ₹20,000 and the balance lying in your EPF account is ₹1 lakh, you will be eligible to withdraw ₹60,000 under this scheme, tax-free.

Deferred repayment of loans

It offers relief to the cash-crunched, but banks will continue to charge interest on outstanding loan.

Radhika Merwin

In a bid to ease the pain for borrowers amid the Covid-19 crisis, the RBI has allowed all banks and lending institutions to offer a three-month moratorium on EMIs (equated monthly instalments) falling due between March 1 and May 31, 2020.

The moratorium essentially implies temporary postponement of payment of interest/principal/instalments for the period from March 1 to May 31; it is not a waiver of loan repayments. The moratorium is available for all retail loans — home, vehicle, credit card dues, personal loans, etc. All banks and NBFCs have sent notifications to their borrowers, communicating the procedure for claiming the moratorium.

In most cases, the banks, by default, continue with the original repayment instructions. Hence, if a borrower wants to make use of the moratorium, she would have to communicate to her bank or lender specifically. Many of the banks have already sent SMSes and e-mails to their borrowers, giving them the option to defer the payment on their loans. Borrowers can also go on the bank website and submit their request for the moratorium. In many banks, the process is quite simple, and can be completed online.

How sweet is the deal?

While the moratorium can offer relief to those who are cash-crunched and do not have a steady flow of income, it is important to remember that the bank will continue to charge interest on the outstanding loan amount, at the rate applicable for the respective loan, during the moratorium period.

This interest is added to the principal amount and will lead to an increase in the tenure of the loan.

Hence, the moratorium comes at a high cost for borrowers with big-ticket loans.

For instance, if a borrower has taken a home loan with ICICI Bank with a principal outstanding of ₹50 lakh and residual tenure of 180 months and he decides to claim the moratorium for EMIs that are due on April 1 and May 1, 2020, the tenure on his loan would increase from 180 to 186 months — an additional accrued interest of ₹2,58,914.

In the case of SBI, claiming the moratorium on a home loan of ₹30 lakh with a remaining maturity of 15 years would result in a net additional interest of ₹2.34 lakh, equal to eight EMIs.

Hence, borrowers should avail themselves of the moratorium only if they are unable to make the loan repayment. If a borrower is salaried and has sufficient funds, he should continue to make the EMI payments.

Credit card dues

Borrowers have to be even more prudent in the case of credit card dues. While taking a break from paying hefty credit card dues may be tempting, it can burn a big hole in your pocket. This is because the interest rates charged on credit card dues can run up to 40 per cent per annum. And during the moratorium period, the banks will continue to levy interest on credit card, which could be a hefty sum.

Also, any dues, if not paid within the interest-free period during the moratorium period, will also attract interest charges.

No cover for extended period

The other important thing that a borrower needs to note before opting for the moratorium is credit-linked life insurance policy. If the borrower has taken a policy that covers the loan liability, such a cover may not be available for the extended period of tenure on account of the moratorium.

Credit life policies essentially ensure that in case of death of the borrower, the amount of loan outstanding (or the chosen sum assured) is paid out by the insurer.

This helps the borrower’s family by lowering the burden of loan liabilities. But if a borrower opts for the three-month moratorium and the tenure of loan increases, the credit life policy may not cover the extended period, according to various insurers.

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