Mukesh Patel.in
practical tax & investment planning online
international tax expert / columnist / author / speaker

YEAR END TAX MANAGEMENT!

With 31st March around, just ensure that you are not missing out on securing any tax saving & filing of your tax return! 

As the fiscal year 2012-13 ends on 31st March, it’s time for all income-tax taxpayers to take a quick look whether they have fully availed of the opportunities for tax saving via saving of specified investments and allocations. 

 TAX SAVING THE 80C WAY!

            ‘Be happy and gay, saving tax the 80C way!’  This should be the ‘magic mantra’ of all taxpayers. “My liquidity constraints do not permit me to invest,” some may retort.  But let this not be your excuse.  Infact, you should be prepared to even beg or borrow or secure a loan or gift or even draw out of your exempt income or accumulation, to make up for your investment limit of Rs.1,00,000 and thus plan to lawfully avoid your tax sorrow.  This is so, because Section 80C of the Income-tax Act does not require you to invest out of your ‘income chargeable to tax’.  This point can be better appreciated by the illustration hereunder:

Illustration:  Mr. Smart’s gross taxable income is Rs.11,00,000, on which the income-tax payable for FY 2012-13 would work out to Rs.1,64,800.  He is under strain to invest Rs.1,00,000 and avail deduction under Section 80C, since he needs the entire income of Rs.9,35,200 (after tax provision of Rs.1,64,800) for meeting his family obligations.

 

 Mr. Smart is in a position to withdraw Rs.1,00,000 from his PPF A/c. He can plan to raise this resource of Rs.1,00,000 and invest the same Rs.1,00,000 back in his PPF A/c. He would thus be entitled to avail the benefit of deduction of Rs.1,00,000 under Section 80C, which would mean that his taxable income would now work out to Rs.10,00,000, the income-tax payable thereon amounting to Rs.1,33,900.  Mr. Smart can thus, smartly save tax of Rs.30,900 (Rs.1,64,800 – Rs.1,33,900) without any fresh investment  or strain on his liquidity resources.

CHARITY CAN SAVE UPTO 54% TAX!

    Under Sections 35, 35CCA and 35AC of the Income-tax Act, where a taxpayer deriving income from business or profession (individual, HUF, firm or company), has made a contribution for scientific research or rural development or for an approved socio-economic welfare project, he is entitled to deduction in respect of the same @ 100% (weighted deduction of 175% in case of scientific research and 125% for research in social science or statistical research). Similar deduction @ 100% (no weighted deduction) is available under Section 80GGA to a taxpayer not having business or professional income.

Charitable institutions like the Gujarat Cancer Society or the Blind People’s Association are also engaged in scientific research and thus enjoy recognition u/s. 35. Thus contributions made to them out of business income can enjoy the benefit of the weighted tax deduction at 175%, which can effectively translate to a tax saving of as high as 54%. The illustration hereunder will well explain the point:

 Illustration: Mr. Dilwala, proprietor of a business concern donates Rs.4,00,000 to the Gujarat Cancer Research Society before 31st March, 2013. At the rate of 175%, he would be entitled to a weighted deduction of Rs.7,00,000 u/s. 35(1)(ii) of the Income-tax Act. As a result, he would save tax of Rs.2,16,300, considering the applicable rate of tax in its case for the current F.Y. 2012-13. In view of the weighted tax deduction, the effective tax saving of Rs.2,16,300 on the contribution of Rs.4,00,000 by the partnership firm works out to a whopping 54%! In other words, by paying only Rs.1,83,700 out of his own pocket (the balance Rs.2,16,300 representing the tax saving), Dilwala can earn the satisfaction of having contributed Rs.4,00,000 for a noble humanitarian cause.

 DON’T MISS YOUR TAX RETURN

            If you missed out filing your income-tax return for Assessment Year 2012-13 by your due date of 31st July or 30th September, do remember that you can still catch up by filing the same before 31st March, 2013 and save yourself from the levy of penalty of Rs.5,000 that can be imposed under Section 271-F of the Income-tax Act. Also remember that in case you committed any error in filing your income-tax return for Assessment Year 2011-12, the last day for revising the same is 31st March, 2013.

            Moreover, you also need to keep in mind that under Section 143(2), a notice for scrutiny of a tax return can be issued within six months from the end of the financial year in which the same is filed. In view of this provision, if you delay the filing of your return beyond 31st March, 2013, you are effectively allowing the tax authorities time of one more year for initiating scrutiny assessment proceedings in your case, since the deadline for issuing such a notice would get extended from 30th September, 2012 to 30th September, 2013.

 

 

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