Tax Saving Deadline For FY 2019-20 Extended Again: Invest In PPF, SSY Before Interest Rates Fall

On Wednesday, the central government extended the deadline for individuals to complete their tax-saving exercise for the financial year 2019-20 to 31 July 2020. Amid the coronavirus-induced lockdown, the deadline to make any deposits or payments towards schemes are eligible for a tax deduction or exemption was allowed till 30 June. The deadline has been now extended by a month.

"The date for making various investment/ payment for claiming deduction under Chapter-VIA-B of the IT Act which includes section 80C (LIC, PPF, NSC etc.), 80D (Mediclaim), 80G (Donations) etc. has also been further extended to 31st July, 2020. Hence the investment/ payment can be made up to 31st July, 2020 for claiming the deduction under these sections for FY 2019-20," the finance ministry said in a statement.

Such a change in the income tax return (ITR) forms is also likely to be introduced soon by the Central Board of Direct Taxes (CBDT). Note that the last day to file your ITR for FY 2019-20 has been extended to 30 November.

Time to make most of extended deadline

An individual taxpayer can claim a deduction of up to Rs 1.5 lakh under section 80C. The investments qualifying for tax deduction include deposits in mutual fund ELSS, PPF, NSC, LIC premium, SSY, NPS subscription, among others.

While the extension has been made to provide some relief to taxpayers having missed the March deadline to make such investment due to the lockdown, you could increase your investment in small savings schemes before higher interest earning opportunity on them falls further.

Falling bond yields means the rates of small savings schemes are likely to be cut when they come up for the quarterly revision at the end of June. Interest rates of small savings schemes like PPF (Public Provident Fund) are linked to government bond yields of the same maturity and revised once every quarter based on the average bond yield in the previous quarter.

For example, the interest rate on PPF for the current quarter April-June 2020 is 7.1 percent as the 10-year bond yield averaged 6.42 percent in the January-March quarter. In April, rates had been lowered sharply by 80 basis points from 7.9 percent to 7.1 percent.

In the April-June quarter, the 10-year government bond yield has corrected further and has averaged 6.07 percent. This will mean that the interest rate on PPF and Sukanya Samriddhi Yojana (SSY) scheme is set to decline and you can act fast to lock your investment in higher rates before the rate cut.

Additionally, you can make claims on the investments you make towards these schemes for the previous financial year, if made before 31 July. However, note that it will only be possible within the annual claim bracket of Rs 1.5 lakh for a financial year.