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How to claim income tax deduction for investments made in April - July 2020

If a tax filer decides to pay tax under this new regime for FY21, then it would be prudent to plan ahead
The government had imposed a nationwide lockdown in March due to the coronavirus pandemic outbreak across India. As a result of this lockdown that began in March, days before the close of the financial year, several taxpayers had been denied the opportunity to make tax saving investment for financial year 2019-20 (FY20). The government had hence extended the due date up to June 30, 2020, and has recently given a further extension until July 31, 2020 for making tax saving investments pertaining to FY20. This move has given taxpayers more time to invest and save tax.

Taking the above example into consideration, it is entirely up to the taxpayer to decide which financial year he wants to claim the deduction for investments made in the months of April to July 2020. However, another point to consider is that the government has introduced a new tax regime in Budget 2020, where taxpayers can pay taxes at reduced tax rates, if they opt to not claim any deductions from their income.

If a tax filer decides to pay tax under this new regime for FY21, then it would be prudent to plan ahead and claim whatever investments are possible for FY20 only. The remaining unclaimed investments will not be able to be carried forward in such cases.

How to claim?

Those who want to claim deductions for investments made in April, May, June and July 2020 in FY20, are required to file schedule DI, or Details of Investments, in their ITR forms for FY20, which are due on November 30, 2020. Schedule DI will contain details relating to investments, deposits and payments made under section 80C to section 80GGC of the Income Tax Act, where the eligible amount of deduction for FY20 is to be disclosed. Further, deductions attributable to any investment or expenditure made during April 1, 2020 and July 31, 2020 need to be separately specified. Any amount utilised out of the capital gains account for FY20 for investments in schedule 54 to 54GB will also need to be specified in this schedule.

Your investment options

1) Insurance Policies

Premiums on running life and health insurance policies can be paid up to July 31, 2020 and will be eligible for deduction for FY20. In addition to old policies in place, even new life and health insurance policies can be taken till then and can also be claimed as a FY20 deduction under section 80D.

2) Interest on Housing Loan and Other Loans

If the EMIs on your housing loan or other eligible loans, are paid until July 31, 2020, even though the interest accrued on them is during FY20, the same can be claimed as a deduction for FY20. Interest deduction is allowed on an accrual basis, so even if you’ve paid the interest later, you can claim whatever belongs to FY20. This benefit is applicable to home loans and other eligible loans, which fall under sections 80E, 80EE, 80EEA and 80EEB of the Income Tax Act.

3) Investment in PPF / EPF / NSC

PPF (Public Provident Fund)/ NSC (National Savings Certificates) investments can be made between April to July 2020, provided the amount claimed in a financial year across all section 80C investments does not exceed Rs 150,000 in entirety. EPF (Employees’ Provident Fund) contributions made for the period April to July 2020 can either be claimed in FY20 or FY21. The taxpayer should take care to ensure no double deduction is being claimed. Investments made in approved pension schemes also fall in this category of deductions.

4) Donations

The extension given for investments under the Income Tax Act, has also been extended to donations, and any donation made under section 80G of the Act up to July 31, 2020, will be allowed as a deduction for FY20.

5) Accounting for Capital Gains

For taxpayers who have received income from capital gains during FY20, there is good news, too. Any investments made under section 54 to section 54 GB of the Income Tax Act, relating to investment, construction or purchase, can be claimed as a capital gains deduction, if made up to September 30, 2020.

One of the key points to note while accounting for these investments made in the months of April to July is that a deduction once claimed in FY20 on an investment made, cannot be claimed again for FY21, for the same amount. However, any balance of investment unclaimed in FY20 can be claimed the following year. For example, Rs 100,000 invested in PPF in January 2020 means that only a further Rs 50,000 can be invested, as section 80C is capped at a limit of Rs 150,000. Hence, if a taxpayer had to further invest Rs 100,000 in June 2020, he can only claim Rs 50,000 for FY20 additionally. Deposits can be separately claimed for FY21 as per the normal process.

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Archit Gupta is Founder and CEO of ClearTax. Views are his own.
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