March Mantras

Being the last month of the Indian financial year, March has its own importance. The current financial year which has started on 1st April 2020, will end on 31st March 2021. It is always advisable to have a look at our income, expenses, investments and other financial transactions done from April, 2020 till date. As the March has already started, it is also equally important to do the necessary financial planning to meet the investments and other financial targets before 31st March. In this article, we will discuss about some simple check points to complete in this month, important changes in taxability which are applicable from this Financial Year (FY) and other important points.

                                            

Simple check points for March:

(i)You should have the statements of all your bank accounts, from April till date. You can download the same using the bank’s net banking facility or you can obtain the copies from bank branch. If you have a passbook, then visit the branch to update the same.

(ii)Once you have complete bank transactions details updated with you (at least up to February), start analyzing each and every transactions. You should prepare a list of each and every receipt and payment entry in the bank statement. You can prepare an excel sheet or you can simply list down them manually in a notebook. This will help you identify the transactions which attract taxability or else, it will ease the work of your consultant.

If you are doing this exercise seriously for the first time, you will realize that there are many transactions made by you only, which you don’t remember. Therefore, as a good practice, it is advisable to do this exercise, at least on quarterly basis.

(iii)If you have closed any of your bank accounts during the financial year, you should have statement of the same till the date of closure of the account and also the account closure certificate from bank.

(iv)If you have fully repaid any loan during the FY, you should have a ‘No Due Certificate’ obtained from the bank.

(v)Check whether you have fully utilized the limit of deductions to be claimed u/s 80C. You still have some days left for making your targeted investment in Public Provident Fund (PPF), Equity Linked Savings Scheme (ELSS), Sukanya Samruddhi Yojna (SSY), etc., which are also eligible for deductions u/s 80C up to Rs. 1,50,000/-.

(vi)Make sure you have all the receipts of premiums paid for life insurance and medical insurance during the financial year till date. 

(vii)You should have all the statements (e.g. ELSS) and passbooks (e.g. PPF and SSY) for the investment made till date.  

(viii)If you have donated any amount to any trust or institute during the FY, which is eligible for deductions u/s 80G, make sure you have a receipt of the same and you must have the PAN number of the institute to which you have donated the amount.

(ix)Check if you have invested the targeted amount to National Pension System (NPS) account (if you have one). It is important to note that the amount contributed to NPS is eligible for deductions for up to Rs. 50,000/-, over and above Rs. 1,50,000/- eligible u/s 80C.

(x)You should obtain Form 26AS and check whether all the income, TDS credits and other informations are reflecting properly in it. It is an important document related to your income from various sources and TDS receivable from it.    

(xi)Obtain your Demat account from your share broker and check whether any short/long term capital gain/loss has been incurred during the year. 

(xii)If you have initiated or completed any transactions related to purchase or sale of property, check that you have all the documents related to this transaction.

(xiii)Check whether you have paid correct advance tax before the end of the financial year, if applicable. 

You should take advice of your financial consultant, if you have any difficulty. 

 Note:

As a COVID-19 relief measure, government extended the due date for making tax saving investments/payments for FY 2019-20 from 31/03/2020 to 31/07/2020. One has to be careful that any such investments/payments made between the period from 01/04/2020 to 31/07/2020 and claimed as deductions in the ITR for AY 2020-21, are not claimed as deduction once again in the ITR of AY 2021-22. You have to make fresh investments/payments during the period form 01/08/2020 to 31/03/2021, to be eligible for claiming deductions in the ITR of AY 2021-22.

Two important changes applicable w.e.f. FY 2020-21:-

Now, let us discuss about two important changes made applicable w.e.f. FY 2020-21, which will affect the tax liability of an individual.

 (a)    Selection between old regime and new regime:

From FY 2020-21 (AY 2021-22) onwards, an individual can select between the two tax payment systems i.e. old regime and new regime.

Under old regime or existing regime, one has to pay tax on his or her income at a higher rate (compared to new regime), after claiming all the deductions eligible u/s. 80C, 80D, 80G, etc.

Under new regime, one has an option to pay income tax at a lower rate. But at the same time, he/she will not be eligible to claim any deductions u/s 80C, 80D, 80G, etc.

You can select any of the regime, which is beneficial to you, subject to some conditions. 

This change can affect your tax liability, depending on the status of your income earned and investments made during the financial year.

(b)    Taxability of dividend:

Dividend income was exempt in the hands of a shareholder (up to Rs. 10 lakh), till FY 2019-20. But w.e.f. FY 2020-21, dividend is now fully taxable in the hands of a shareholder. Similarly, the dividend received from a mutual fund is fully taxable in the hands of a unit holder. It means that a single rupee of dividend received by a shareholder/unit holder on or after 01^st April 2020, will be taxable at the slab rate applicable to the taxpayer. The taxpayers should estimate their tax liability, after considering this important change of taxability of dividend.

A provision of withholding tax has also been introduced in the Finance Act, 2020. Therefore, TDS @ 10% will be deducted from dividend income paid in excess of Rs. 5,000/- during a financial year by a company or mutual fund to a shareholder/unit holder. (As a COVID-19 relief measure, the government has reduced the TDS rate to 7.5% for distribution of dividend from 14^th May, 2020 to 31^st March, 2021.)

I hope this article will help you make your financial compliance easy and perfect.