Suresh R I Perera , LLB, Attorney at Law, FCMA (UK), CGMA
In a few more days the end of the tax year or the year of assessment 2021/22 will reach on the 31st March. Many individuals take cognizance of their income tax liability for the year in the month of November where the filing of the Annual Income Tax Return is due as opposed to month of March. However, if an individual is to be diligent and be efficient in managing his tax liability and wishes to achieve maximum tax savings for the year, the person has to take appropriate measures and actions prior to 31st March. Such techniques are generally referred to as “year-end tax planning techniques “
A significant technique that every individual should be conscious of is the full utilization of Reliefs & allowances provided by the Inland Revenue Act. In order for full utilization of “expenditure relief” of Rs. 1.2M & “Solar relief of Rs. 600,000/- “, active measures from a tax payer is required, as opposed to utilization of “personal tax relief of Rs. 3M” by any tax payer or “ 25% Rent relief “ by a tax payer with building rental income during the Year of Assessment.
The expenditure relief refers to the quota of Rs 1.2M to be deducted provided specified expenditure for that amount have been incurred during the 12 month period. Health expenditure including contributions to medical insurance, education, housing loan interest, contributions to local pension funds, and expenditure incurred for purchase of listed shares , treasury bills and bonds form the list of actual expenditure incurred during the year. On analysis of the list one may appreciate, that even if a person has not incurred any of the expenditure falling within the first 4 types , therefore if there is a short fall in utilizing the quota of Rs 1.2M, still the person has the opportunity to purchase shares from the Stock exchange or invest in TBs or bonds and achieve the right to deduct full quota of Rs 1.2 M. The purchase cost of these instruments are deductible for tax. A person availing this technique must take cognizance of the fact , that the Inland Revenue Act provides a full tax exemption for sale proceeds of listed company shares. Therefore, whilst a tax deduction, consequently a tax saving is available for the cost incurred in purchase of listed company shares, the year in which sales proceeds are received, the same would not be exposed to tax.
In addition to the above expenditure relief, a person has a right to deduct up to Rs 600,000/- on account of expenses incurred for installing solar panels connected to the national grid on a roof. This even covers the right to deduct the total amount paid to a bank on account of a loan obtained for the purpose, restricted Rs. 600,000/- for a year ,
spread across multiple years until the deduction of full amount.
Thus, one may appreciate a total tax deduction of Rs 1.8M is available under the Inland Revenue for a person wishing to avail the same provided appropriate measures are taken prior to the 31st of March. Assuming the person is in the progressive tax rate of 18% the tax saving to be achieved by this by the person for a year is Rs 324,000/-
Taking into consideration the “Personal Relief” of Rs. 3M and the “expenditure relief “ and “solar relief” individuals drawing salaries up to Rs, 400,000/- per month have the opportunity to be free of taxes by using simple investment techniques as mentioned above.(assuming no other sources of income).
In addition to the above, the taxable liability can be reduced by qualifying payment reliefs such as a donation to an approved charitable institution established for the provision of institutionalized care for the sick and needy up to a maximum of Rs 75,000 or 1/3rd of the taxable income whichever is less.
Furthermore, donations such as any sum paid to the Higher Education Institutes, Buddhist and Pali University of Sri Lanka etc would also qualify as ‘qualified payment deductions’ against the taxable income.
Further a latest qualifying payment deduction introduced under the Law is the contribution made by a resident individual in money or otherwise to establish a shop for a female individual who is from a Samurdhi beneficiary family (recommended by the Department of Samurdhi Development).
