As we are approaching the end of this financial year, there are certain tasks which we need to accomplish before 31st March 2018. Let us discuss this ‘must do list’ for every investor.
- Filing details of salaries received from earlier employer
If you are employed with more than one employer during the current year and have not yet furnished the details of your salaries from the previous employers to your current employer, please furnish the details to your current employer immediately so that the current employer can take the other salaries into account while making tax calculations for the purpose of tax deductions. The details need to be submitted in Form no. 12B to your employer. In case you do not do this now, you may get the shock when you will find out that you are required to pay huge tax (along with interest) at the time of filing of your return of income. This happens because all the employers would have given you the benefits of initial exemption as well as deduction under Section 80 C which results in deduction of lower tax as compared to what tax would have been deducted had you worked with one employer only.
- Verify the amount of deduction available from your bank records
For availing the deduction under Section 80C, we avail the facility of ECS debit in our bank account like life insurance premium, SIP for equity linked saving schemes (ELSS), home loan EMIs etc. It might have happened that the ECS debit might not have happened due to some reason. Likewise even in case you have issued a cheque for the life insurance premium, the cheque might not have been yet presented to the bank.So, please verify and cross check that for all the eligible amount of deductions, the amount have in fact been debited in your bank account. In case some of the amounts have not been debited, please ensure that either the payment is made before the year end for those items or investments are made in any alternate products.
- Payment of advance tax
You are required to pay advance tax on your current year’s income, in case your net tax liability for the year after reducing the tax deducted at source from all the sources exceeds Rs 10,000. Moreover, in case you are a senior citizen and are not engaged in any business or profession, you need not pay any advance tax. In the above two cases, the tax can be paid while filing your income tax return. Please note that you are required to file the income tax return by the due date and pay the tax then. In case of delay, you will have to pay interest on amount of the tax payable. The advance tax has to be paid in four instalments in the ratio of 15%, 30%, 30% and 25%. Though advance tax can be paid in four instalments and in case you have missed three earlier dates, you can still pay the balance advance tax by 15th March which is the date for last instalment. Even any advance tax paid by 31st March is also treated as advance tax.
In case you are liable to pay advance tax and fail to pay it fully, you may have to pay double interest, first for non-payment of advance tax from the 1st day of April and secondly for delayed filing of income tax return. You have to pay interest for non-payment of advance tax from 1st April of the next year till the taxes are actually paid. For the salaried tax payers, the total of tax on salary is deducted by the employer at the time of payment of the salary.So in normal circumstances, salaried tax payers do not have any advance tax liability. However, in case the salaried person has income from sources other than salaries like short term capital gains on sale of equity shares or on redemption of equity mutual funds units or any profit from redemption of debt schemes etc., they may have to pay advance tax if the net tax liability exceeds ten thousand rupees. The salaried have the option to report such other income to the employer and request the employer to deduct the tax on such income while deducting regular tax on your salaries. If you have substantial income on which no advance tax has been paid till date, it is advisable to report such income to the employer as by reporting the income to the employer, you are out of the liability to pay advance tax and thus out of the liability to pay interest on such delayed payment of taxes.
However, for the self employed where the tax deducted on their income is not sufficient enough for the aggregate tax liability, they also have to pay advance tax. Even in cases of interest income, where the tax is deducted at source at the rate of 10% by the payers, you may still have to pay advance tax in case your applicable slab rate is 20% or more..
- Minimum contribution to PPF accounts and NPS account
In case you have opened a PPF account either in your own name or in the name of children or spouse,it may so happen that you might have exhausted the limit of Rs 1.50 lakh available under Section 80 C without having to contribute any amount to the PPF account. In such a case, you still need to contribute the minimum amount of Rs 500 every year in each of the PPF account to avoid the account becoming dormant. The dormant account can be made active by payment of Rs 100 as penalty and contribution of Rs 500/- for each year of default.
In case, you have opened an NPS account, you need to deposit minimum of Rs 1,000 every year in your account. So in case the deposits are not adequate in your NPS account during the year, please deposit the minimum amount so as to avoid the account categorized as frozen. The frozen account, however, can be made active by paying a penalty of Rs 100 and one contribution of Rs 500. Please note that the amount to be deposited for de-freezing the account is only for one time default and not for each default.
- Make investments in qualifying products for claiming tax benefits under Section 80 C and 80 CCD(1B)
In case you have not invested for claiming tax benefits till now, please do not rush to buy any life insurance policy unless you really need that risk cover. And in case you wish to buy life insurance, please buy only term plan and preferably online term plan. Please do not buy any traditional product or ULIP to save your taxes. In case, you are investing in ELSS for tax benefits under Section 80 C, please do not put your entire investments ELSS at one go. Since ELSS is basically an equity product and it is never advisable to make investment in equity in lump sum to avoid volatility.You can invest either in national savings certificates or tax saving fixed deposits for five years to avoid the volatility of equity investments.
In addition to deduction of Rs 1.50 lakh available to you under section 80 CCE (For qualifying items under Section 80 C, 80 CCC and 80 CCD(1)), you can claim an additional amount of Rs. 50,000/- under Section 80 CCD(1B) by investing it in NPS. So in case you wish to reduce the tax liability, put upto Rs 50,000/- in your NPS account.
- File pending income tax returns for financial year 2015-2016 and 2016-2017 as both the returns can’t be filed beyond 31st March 2018
As per the present tax laws, you can file income tax returns for two financial years at any given point of time. However, from the next year onward, you will be able to file your income tax returns for one year only and therefore, the income tax returns for two years are getting time barred by 31st March 2018. So, in case you have not filed your income tax return for the last two financial years i.e. 2015-2016 and 2016-2017, you have the last chance to file both these returns by 31st March 2018.
- Book long term capital gains on shares and mutual funds schemes whose price or NAV is higher than those on 31st January 2018
The finance minister has proposed to tax long term capital gains over Rs 1Lakh @ 10% arising on sale of equity shares or units of equity oriented mutual funds for sale or redemption of such shares and units after 1st April 2018. While doing this, the finance minister has proposed to freeze the long term capital gain accrued till 31st January 2018.So any appreciation in the value of equity shares and equity mutual fund after 31st January but before 31st March 2018 will become taxable if the shares/units are sold on or after 1st April, 2018. Please note that the limited appreciation between these periods is exempt under Section 10(38) if the transfer/sale happens by 31st March 2018. So in case any of your shares/units of equity funds have higher value than that of 31st January 2018, you may sell them and save tax @ 10%. In case you have made these investments for long term, you may decide to sell the shares same day and buy the same next day or carry out these transactions with different brokers on the same day. The purchase and redemption of the units can be done on the same day.
- Long term Capital gains relating to sale of asset other than equity shares and equity oriented funds
In addition to levying the long term capital gains on sale of equity shares and equity oriented schemes of mutual funds, the finance minister has proposed some other changes in the field of capital gains which are applicable from 1st April, 2018.We can take the benefit of existing provisions before 31st March 2018 if we understand the implications of the amendment proposed.
Section 54 EC of the Income Tax Act allows all the tax payers ( including individuals and HUF) to avail exemption from payment of long term capital gains tax if the long term capital gains arising from any asset including those from land and/or building are invested in capital gains bonds of some specified financial institutions. The investment has to be made within a period of six months from the date of sale of the asset. Presently, the bonds have a tenure of 3 years.However, for the bonds which are issued after 31stMarch 2018 will have enhanced tenure of 5 years. So, if you make investment in those bonds after 31st March, 2018, your money will get blocked for 5 years at 5.25% rate of interest. If you have sold any long term capital asset and the period of six months spills over to the next year, I would advise you not to wait till end of 6 months for making investments and invest the capital gains in these bonds by 31st March 2018 to avail the lower tenure of 3 years. Even if you have not sold any asset but are anyway planning to sell, do it as soon as you can so that the benefit or reduced tenure can be availed.
Currently, the exemption under Section 54EC can be claimed for sale of any capital asset including land or building. From 1st April 2018, this exemption will be available only in respect of long term capital gains arising on sale of land, building. So, in case you are planning to sell any long term capital asset other than land and building like unlisted shares, bonds, jewellery, bullion , please expedite the sale by 31st March 2018 to avail the benefit of existing exemption provisions. After 31st March, non-individual tax payers will not have any tax avenues to save the long term capital gains. Moreover, though Individual and HUF tax payers can claim the long term capital gains exemption on any asset other than a residential house by making investment in another residential house u/s 54F, but there are certain restrictions presently. Individual or HUF can not avail this benefit if they own more than one residential house other than the one being bought. Moreover, since investments in house requires significant investments and thus for smaller capital gains, this avenues can’t be used for such gains. A non-individual tax payer like a company or a partnership firm which is planning to sell an under construction property, they should do this before 31st March 2018 to avail the long term capital gains exemption available under Section 54 EC now.Notably, after 31stMarch 2018, a company or firm will not be able to claim it as an under construction property will be regarded neither as a land or a building but only a right to acquire the property under construction.
- Submit the proof of expenses to your employer
There are certain exemptions which are available to employee on certain expenses incurred. Like for items House Rent Allowance (HRA) and Leave Travel Assistance (LTA) unless you submit the documents to your employer, the employer will treat these allowances as exempt and deduct tax thereon. However, you can claim these items as exempt and claim for tax refund for the excess tax deducted. Please note that for the items like medical reimbursement, which is part of your salary as component, becomes tax exempt only if you submit the necessary documents to the employer.In case, you fail to submit the documents, you can’t claim the tax exemption in respect of this amount at the time of filing of Income Tax Returns.
I am sure this discussion will help you in taking better decisions on your investments and taxes.
The author is a CA, CS and CFPCM and he can be reached at firstname.lastname@example.org