Last-Minute Tax Planning Checklist for Financial Year End

14 March, 2024

Synopsis

• March 15 is the deadline to make advance tax payment if your tax liability for the financial year exceeds ₹10,000.
  
  
• Investing in 80C investment instruments and deploying the tax loss harvesting strategy can help you minimize your income tax outgo.
  
  

As the financial year draws to a close, Indian taxpayers find themselves at a crucial juncture to review their financial affairs and plan for taxes. Effective tax planning not only helps us to optimize our tax liability but also ensures compliance with ever-evolving tax regulations.

So, whether you are a salaried professional or a self-employed individual, you must ensure you are at the top of your tax planning game. If you need assistance, here is your complete financial year-end tax-planning checklist. By following these tax planning tips, you can save taxes and avoid legal and financial complications.

1. Make advance tax payment

As per Section 208 of the Income Tax Act of 1961, all taxpayers in India must pay an advance tax if their tax liability for the financial year exceeds ₹10,000 and no (or less) Tax Deducted at Source (TDS) has been withheld. These payments need to be made in four instalments, and the last date for the payment of the fourth (and final) instalment is March 15. 

The inability to pay the advance tax by the due date can attract penalties and interest. So, if eligible, you must clear your advance tax payment before the due date of the financial year. Make sure you consider all your sources of income, including capital gains and rental income, while calculating your tax liability.

2. Invest in tax-saving instruments

To encourage citizens to make long-term savings, the Government of India allows tax deductions on specific investment instruments under section 80C of the Income Tax Act. You can invest in these instruments before March 31 to claim tax exemptions and subsequently reduce your income tax liability. Apart from tax saving, these instruments can help you plan for your long-term financial goals.

Investment instruments under section 80C include the National Pension System (NPS), Unit-Linked Insurance Plan (ULIP), Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY), 5-year Fixed Deposits, and Equity-Linked Savings Scheme (ELSS). The maximum tax deduction allowed under this section is ₹1.5 lakh per financial year.

You can also procure life and health insurance policies for yourself and your family before March 31. Premiums paid towards medical insurance policies are available for additional tax deduction under section 80D, up to a maximum of ₹25,000 for regular taxpayers and ₹ 50,000 for senior citizens.

3. Rebalance investment portfolio

As the Indian stock markets have given good returns in the past, it is important to keep an eye on the mutual fund and stock performance. However, there is also the possibility that some of the stocks or mutual funds are currently underperforming so this is a good time to review and rebalance your portfolios if required and stay invested for long-term growth.

In such a case, you can include tax loss harvesting in your tax planning strategy. Tax loss harvesting allows you to minimize your capital gains tax liability by selling investments that are experiencing short-term losses. The basic idea is to sell assets that are currently at a loss to offset capital gains realized elsewhere in the portfolio.

Then, you can reinvest in those assets after the end of the financial year to maintain your original asset allocation or investment portfolio.

4. Review your annual information statement

Your Annual Information Statement (AIS) contains information about your gross income during the applicable financial year, tax deductions that you have claimed, and your annual taxable income. It is one of the most crucial documents that helps you file your income tax returns (ITRs) accurately.

You must review your AIS thoroughly before filing your ITR. Make sure all details are correct to the best of your knowledge. In case you find any discrepancies, inform the income tax department immediately. If required, submit the relevant documents, such as your salary slips, investment proof, etc.

By following this comprehensive tax planning checklist, you can navigate the complexities of the income tax landscape in India. Proactive tax planning before the end of the financial year can substantially decrease your tax burden, optimise savings, and ensure compliance with government regulations. The sooner you realise the importance of tax planning, the better it is for your financial well-being. 

With HDFC Bank, you can pay your income tax online through a seamless process. Click here to know more.

*Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice from before you take any/refrain from any action. Tax benefits are subject to changes in tax laws. Please contact your tax consultant for an exact calculation of your tax liabilities.