Summary: As the financial year ends on March 31, taxpayers must take key steps to ensure financial compliance and optimize tax savings. Individuals should evaluate their tax liability under the old and new tax regimes to decide the most beneficial option. The old regime allows deductions like ₹1.5 lakh under Section 80C for investments in PPF, ELSS, and tax-saving FDs, health insurance under Section 80D, and home loan interest under Section 24(b). Charitable and political donations also offer deductions under Sections 80G and 80GGC. Meanwhile, the new tax regime offers lower rates but eliminates most deductions, providing a ₹50,000 standard deduction and rebate under Section 87A for incomes up to ₹7 lakh. Taxpayers must declare their preferred regime to employers before March 31, as the new regime is now the default. Both regimes require a thorough review of income sources, including salary, freelancing income, capital gains, and rental income, to ensure accurate reporting and necessary tax payments. Outstanding taxes like advance tax or self-assessment tax must be cleared to avoid penalties under Sections 234B and 234C. Additionally, individuals should reconcile TDS credits using Form 26AS and update nominations for financial accounts. Essential compliance tasks include linking Aadhaar with PAN and filing Form 12BB for old-regime deductions. For post-year-end actions, timely filing of ITR ensures carrying forward losses and tracking refunds. Proper year-end planning not only ensures compliance but also helps taxpayers maximize savings under the chosen regime.
Financial Year-End Checklist: Key Things to Wrap Up Financially Before the Financial Year Ends
As the financial year draws to a close (March 31st), it’s crucial for taxpayers to ensure that their financial affairs are in order. Proper planning and timely action can help you maximize tax savings, avoid penalties, and ensure compliance with both the old tax regime and the new tax regime introduced under the Income Tax Act, 1961.
In this article, we will explore the essential steps to wrap up your finances before the financial year ends, tailored for both tax regimes.
1. Understand Your Tax Regime:
| Old Tax Regime | New Tax Regime |
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2. Key Steps to Wrap Up Finances Before March 31st:
I. For the Old Tax Regime:
A. Investment Planning
Investments play a critical role in reducing taxable income under the old regime. Ensure you have maximized your investments before the deadline.
1. Section 80C Investments (Up to ₹1.5 Lakh Deduction): Invest in instruments like PPF (Public Provident Fund) , ELSS (Equity-Linked Savings Scheme) , NSC (National Savings Certificate) , Life Insurance Premiums , and Tax-Saving Fixed Deposits . Contributions to EPF (Employees’ Provident Fund) and tuition fees for children also qualify under Section 80C.
2. Section 80D (Health Insurance Premiums): Claim deductions for health insurance premiums paid for yourself, spouse, children, and parents. The maximum deduction is:
₹25,000 for self, spouse, and children.
₹50,000 for senior citizens.
3. Section 24(b) (Home Loan Interest): Deduct home loan interest up to ₹2 lakh for self-occupied properties.
4. Section 80CCD(1B) (NPS Contribution): An additional deduction of ₹50,000 is available for contributions to the National Pension System (NPS).
B. Plan for Charitable Donations
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- Under the old regime, donations to specified charities qualify for deductions under Section 80G .
- Ensure donations are made to eligible institutions and obtain valid receipts.
C. Plan for Political Contribution
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- Under the old tax regime, Section 80GGC provides exemption for any donations or contributions made to a political party or any electoral trust.
- Ensure the donation is not in cash or in kind and obtain valid receipts.
II. For the New Tax Regime (NTR)
1. Evaluate Whether the New Tax Regime is Beneficial for You
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- The New Tax Regime (FY 2023-24 onwards) is the default regime, but taxpayers can still switch to the old regime if it suits them.
- The NTR offers lower tax rates but eliminates most exemptions and deductions.
- Compare your tax liability under both regimes to determine the most suitable option.
2. Review and Declare Tax Regime to Your Employer
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- Employees must inform their employers before March 31 whether they wish to stay in the New Tax Regime or switch to the Old Regime.
- If not declared, TDS deductions will be based on the New Tax Regime by default.
3. Optimize Tax Planning Under the New Regime
Since common tax-saving deductions (80C, 80D, HRA) are not available, consider alternative strategies:
A. Utilize Standard Deduction of ₹50,000: This is automatically available for salaried individuals and pensioners under the New Tax Regime.
B. Opt for Employer Benefits
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- Employees can still avail of benefits like EPF contributions, NPS (employer’s contribution), and food allowances.
- If your employer provides an NPS contribution, it remains tax-free up to 10% of salary (14% for government employees) under Section 80CCD(2).
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C. Maximize Rebate Under Section 87A
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- If your total taxable income is ₹7 lakh or below, the ₹25,000 rebate ensures zero tax liability.
- If income exceeds ₹7 lakh slightly, invest in VPF or increase NPS contributions to remain under the rebate limit.
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D. Plan Capital Gains Efficiently
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- The New Tax Regime does not impact capital gains taxes, so review your stock, mutual fund, and property investments.
- Consider tax-loss harvesting to offset capital gains.
- Long-term capital gains (LTCG) over ₹1 lakh from equities remain taxable at 10%.
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4. Review Investments and Adjust Portfolio
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- Since tax-saving instruments like ELSS, PPF, NSC, and insurance premiums don’t provide tax benefits under NTR, focus on high-return investments instead.
- Consider index funds, direct stocks, and NPS for long-term growth.
Avoid low-return tax-saving instruments if you are firmly opting for the new regime.
5. Clear Off High-Interest Debt
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- The New Tax Regime does not provide deductions on home loan interest (except for affordable housing under Section 80EEA).
- Consider prepaying high-interest loans like credit cards and personal loans to reduce financial burden.
3. Common Points for both the Regime:
A. Review Your Income Sources
1. Salary Income: Verify your Form 16 or salary slips to ensure all components of your income (basic salary, HRA, LTA, etc.) are correctly reported. If you’re switching jobs during the year, ensure TDS (Tax Deducted at Source) is appropriately adjusted between employers.
2. Freelance/Professional Income: Maintain accurate records of income and expenses. File GST returns if applicable and ensure timely payment of advance tax.
3. Capital Gains: Review your investments in stocks, mutual funds, and real estate. Calculate short-term and long-term capital gains. Use exemptions like Section 54 (for house property sale reinvestment) or Section 54EC (investment in specified bonds) to reduce tax liability on long-term capital gains.
4. Rental Income: Deduct municipal taxes and standard deductions (30% of rent) before reporting rental income. File necessary TDS returns if applicable.
B. Pay Outstanding Taxes
1. Advance Tax:
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- If you have business income, freelancing income, or capital gains, check if you need to pay advance tax before March 15.
- Failure to pay advance tax on time attracts interest under Sections 234B and 234C.
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2. Self-Assessment Tax: If you have any pending tax liabilities after considering TDS and advance tax, pay self-assessment tax before filing your return.
C. File Necessary Declarations
1. Form 12BB (Employer Declaration):
Submit investment proofs and rent receipts to your employer for claiming deductions under the old regime.
2. TDS Reconciliation:
Cross-check your TDS credits using Form 26AS or the TRACES portal. Report discrepancies to your deductor (employer/bank) immediately.
D. Use Leave Encashment & Other Benefits
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- If you have unused paid leaves, check if your company allows leave encashment before the year-end.
- If your company provides a year-end bonus, plan tax-efficient investments with it.
E. Update Financial Documents & Nominations:
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- Check if your Bank Accounts, Fixed Deposits, Insurance Policies, And Mutual Funds have the correct nominee details.
- If there have been life changes (marriage, children, etc.), update your will and estate plan.
F. High-Value Transactions: Report high-value transactions (e.g., cash deposits exceeding ₹10 lakh, credit card spends over ₹2 lakh) to avoid scrutiny.
G. Link Aadhaar with PAN: Ensure your Aadhaar is linked to your PAN to avoid processing delays or penalties.
4. Post-Year-End Actions
1. File Your Income Tax Return (ITR): The due date for filing ITR for individuals is July 31st (extended in some cases). Choose the correct ITR form based on your income sources.
2. Carry Forward Losses: File your return on time to carry forward losses (e.g., capital losses, business losses) to future years.
3. Track Refunds: Monitor your refund status on the Income Tax e-Filing portal.
Conclusion
Wrapping up your finances before the financial year ends requires careful planning and execution. Whether you’re following the old tax regime or the new one, ensuring compliance, maximizing deductions, and paying taxes on time will help you avoid penalties and optimize your tax savings.
By taking proactive steps, such as reviewing your investments, reconciling TDS, and planning charitable contributions, you can end the financial year on a strong note. Always consult a tax professional or chartered accountant if you’re unsure about specific aspects of your financial planning.