Sunday, Sep 12, 2021 07:45 [IST]
Last Update: Sunday, Sep 12, 2021 02:10 [IST]
July 31 is usually the last day to file Income Tax Return (ITR), but the deadline for Financial Year (FY) 2020-21 for individuals has now been extended to December 31, 2021 after the previous deadline of September 30 amidst Covid-19 pandemic. To avoid last minute rush, it’s better to file ITR well ahead of time. In fact, the tax authorities have made it easy for assesses, however the tax portal has been plagued with glitches recently.
Since the closing date is fast approaching, tax payers are bullied by tax consultants / Chartered Accountants. People run into difficulties and seek help from a tax expert to save on income taxes. Tax filers find mayhem task to collect Form 16, 16 A, annual salary / pension statement and the most tedious part is the print out on the savings passbook for the FY where they have to stand in long queues in banks for updating. Actually it’s just four entries of interest credit at quarterly.
Terminologies used in tax matters have always been a puzzle for most of the people and tax filers are not aware of tax saving instruments too. The worst fears could be realized by them only after paying penalties during tax filing. There are penalties for late filing ITR or due payments in self-assessment tax. Advance tax should be paid before the end of FY to avoid such penalties / interest. Challan No ITNS 280 is for tax payments with banks / financial institutions.
There are various options open to tax saving. Usually there are only a few best tax saving instruments. Section 80C of the Income Tax Act, 1961 is one of the most popular that allows a maximum deduction of Rs. 1.5 lacs every year from the taxpayers’ total income. Under that section, the availability of suitable investment options is put on a long list.
They are basically from ELSS (Equity Linked Saving Scheme) to PPF (Public Provident Fund), ULIP (Unit Linked Insurance Plan), SSY (Sukanya Samriddhi Yojana), SCSS (Senior Citizen Savings Scheme), NPS (New Pension Scheme), Life Insurance, NSC (National Savings Certificate) and Fixed Deposit etc. Above all, ELSS, NPS, ULIP and PPF are known to be the best in comparison with high return and less time for lock-in-period.
There are reasons why we should invest in an ELSS? As said before, investments in ELLS are eligible for a tax deduction from gross total income. Though one can avail a maximum tax deduction of only Rs 1.5 lacs under the section, there is no limit on the amount one can invest in these schemes thus ELSS offers the dual benefit of tax deductions and long term wealth creation too.
All tax saving investments typically comes with a mandatory lock-in period. The market oriented ELSS has the shortest lock in period of just 3 years while PPF comes with a 15 years of interest rate at 7.1% now. The government set the interest for ULIP for 5 years. NPS is another good investment with fixed interest ranges from 9% to 12% set by the government for attaining the age of 60 years.
Since stocks are risky and volatile in the short term, invest in ELSSs for five years may bring assured return. Also it’s considered ideal for first time investors to enter the stock market with a view of equity exposure. Investors don’t need to arrange for a lump sum to make investments as it has an option to invest through Systematic Investment Plans (SIP) in the frequency of weekly, monthly, quarterly, or bi-annually, as per the comfort of an investor. The minimum investment for ELSS SIP can be as low as INR 500 and there is no maximum limit.
There is no tax-free returns offer any more for ELSS or any equity mutual funds after the introduction of LTCG tax on long term capital gains of over Rs 1 lacs at flat 10%. But ELSS would provide better post-tax returns than any other traditional tax-saving investments like PPF, NSC, five-year FD. Unlike other tax saving investments that comes with a fixed maturity date, an ELSS has no such period and can continue to hold on as long as one wishes as it is professionally managed.
After all, ELSS is the only kind of mutual funds eligible for tax deductions and can save up to Rs 46,800 a year in taxes which is the shortest among all tax-saving options and the most popular tax-saving investment covered, which could be the best option for salaried employees / pensioners’ hard earned money as it has the potential to offer the highest returns among all sections of 80C investments..
The introduction of new portal from Income Tax ‘e-filing 2.0’ would definitely enhance ease of living to tax filers for keeping the pace with time. Wear your proud filer badge and be an inspiration to file income tax return to help the nation accelerating towards greater heights.