March-ending havocs: What to expect and what not to?
January 1 is among the most important dates for many of us. The start of a new year brings fresh energy and is filled with hopes. Some people also decide on their resolutions. But when it comes to financial planning, March 31 is an equally important date, if not the most, because it draws the curtain on a financial year. A new financial year starts on April 1, a date crucial from the point of view of managing money and household budgets.
Money plays an important role in our lives and better planning through savings, investing, taxation, etc, gives us the ability to pursue our dreams and goals.
But before you set out budgets for the new year, here is a checklist to complete before March 31, 2023.
Linking of PAN with Aadhaar
The Income Tax department has made it mandatory to link PAN cards with Aadhaar with March 31 as the deadline. PAN cards of those who fail to do so before the deadline will become inoperative from April 1. The process of linking the two numbers can be completed by logging into the website of the tax department.
Individuals with inoperative PAN cards will be liable for all the consequences under the law and will also not be able to file tax returns in addition to facing difficulties in various financial transactions.
It is among the most important aspects of money management. Salaried as well as self-employed individuals are mandated to pay taxes to the government. The amount of tax paid depends on the annual earnings of each person. But in order to ensure that individuals are not burdened with higher taxes, the government has given some exemptions such as investments in provident funds or buying an insurance policy under various sections of the IT Act.
If the individuals are planning to claim tax deductions by making investments eligible under Section 80C of the IT Act, where a maximum deduction of Rs 150,000 can be availed, they must do so before March 31. Other sections also provide some tax relief.
Moreover, salaried individuals must ensure that proof of such investments is submitted to their employers, which will help companies arrive at tax liabilities. Companies in India are mandated to cut taxes on the monthly salaries of employees. This is called tax deducted at source. If employees don’t give or the investment is lower than what was initially disclosed, employers deduct higher TDS.
Those repaying home loans must also submit relevant documents to the HR department of their companies to avail the benefit of the tax deduction on repayment of principal and interest payments. Usually, such documents are expected to be submitted by January or February.
Individuals are advised not to wait till the last minute for such submissions because it may force them to invest in financial assets just for the sake of saving on taxation. Such a hurry may lead to investments that are not in sync with the goals of the individuals.
Similar to investment, insurance policies—both life and health – bought before March 31 are eligible for tax benefits. However, individuals must see a tax advantage as an added benefit and not the main reason for buying insurance policies. Insurance coverage is an essential part of personal finance and hence, it should be bought with protecting individuals from unforeseen risks and emergencies.
It is also important to note that the Union Budget for FY24 has introduced some changes related to tax benefits on income from high-value policies. Accordingly, if the aggregate premium for traditional life insurance policies (non-ULIP) after April 1 is over Rs 500,000, income from such policies will be taxed. Policies bought before March 31 will be exempted from the new rule.
Review of investment
The idea of investment is to create long-term wealth. But given the impact of inflation on returns, it is a good habit to take a yearly review of the investment portfolio to gauge the performance and whether it is aligned with various goals.
Such review will help in drawing up an investment plan that is in line with goals and dreams and not done merely to check boxes such as saving on taxes. Taking up such an exercise before March 31 is a good idea because any changes can be rolled out from the new financial year.
Similarly, it is important to take stock of the tax liability, especially in light of changes to the tax policy announced by the government in the recent budget. According to the budget announcement, the new tax regime, which was first announced in Budget 2020, will now be the default regime starting FY24. Those who wish to continue with the old regime must indicate their preference. But individuals must consult tax advisors and financial plans before making such a decision.
There are a few other points in the checklist for the March 31 deadline.
1) Donations: Don’t postpone donations to charitable organisations and to NGOs. Some of these donations are eligible for tax deductions under Section 80G of the Income Tax Act. Donations above Rs 2,000 must be in a non-cash mode to be eligible for tax benefits.
2) Pradhan Mantri Vaya Vandana Yojana: This insurance-cum-pension scheme provided by the Life Insurance Corporation of India for senior citizens is available for investment till March 31. The scheme provides an assured minimum pension for 10 years to those above ages of 60 years.
3) EV loan: Interest payment amounting to Rs 150,000 on loans taken to purchase electric vehicles is eligible for tax deductions, provided the loan was disbursed before March 31, 2023.
4) Bank deposits: Banks are scrambling for deposits and offering higher rates to fixed deposit holders. Some of these incentives in the form of higher rates are available till March 31. Savers with lower risk appetite and willing to invest in fixed deposits must scan through such offerings.
5) Nomination: Ensure that nomination, as well as KYC process, is completed for all investments and deposit accounts before the start of the new financial year.
With a month left before these deadlines, individuals must start drawing an action plan to meet the March 31 deadline as part of their financial planning and money management activity.
Postponing such decisions can lead to a higher tax burden and come in the way of not only lifestyle choices such as upgrading your mobile phone or your wardrobe but can also make it more difficult for you to stick to long-term plans such as saving for your retirement or your children’s education.
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