8 mistakes that one should avoid doing in new financial year

By | April 17, 2016

incometaxtips.inIt’s now beginning of new financial year as well as beginning of financial planning for the year. Taxpayers should complete some of activities at initial stage itself. The March year closing hangover must have been over till now, but if you take up the following tasks at start of new financial year itself, it can save you head aches later in the year.

 Think thru and Plan your tax right away

It is perfect time to start the tax planning at the start of the year. If you are planning to invest in Equity Link Saving Scheme (ELSS), it is best to start an SIP in April itself this way investors who took the SIP route earned more as compare to those who waited till March to invest in ELSS schemes. The  investments across the year not only mitigates the risk of volatility, but also averaging the burden at the end of the financial year.

In the same manner those who are planning to put some of the cash in PPF should invest the same in April so as to earn maximum amount of interest.

If there is any shortfall in the investment eligible for tax deduction then one must also plan to cover that during the year. The maximum amount of deduction that is allowed under section 80C is Rs. 150K.

Enroll for VPF mandate to employer

It is traditional yet very important part of our investment as well as securing retirement. All employed class of taxpayer must enroll with employer for mandatory VPF deduction. This way you will be systematically investing for lower tax deduction. VPF contributions are eligible for tax deduction under Sec 80C and are tax-free on withdrawal. Even if EPF becomes taxable in later years, the existing corpus will not get taxed. Without much ado enroll yourself for VPF mandate to the employer immediately .

Outline investment portfolio

incometaxtips.inIt is very important for an investor to outline his investment portfolio. This portfolio help you to understand taking wise decision. If you don’t know your asset allocation because all investments are not at one place, start using a portfolio tracker. Now a days with this digital era you can have ample of free investment portfolio tracker. All that you have to do is upload the details of your investment and NPS details and all transactions and you will have the portfolio ready with much deep diving analysis and earning details.

One must plan its investment in a way that covers his present need by way of dividend/interest and should insure the retirement. The risk of volatility needs to be keep in mind.

Keeping track of all the receipts and expenses

With this digital world everyone is using online method of doing business, shopping & paying for expenses. Everyone should keep track of all the transactions incurred thru out the year so that at the end of next year you will have all the related information available for your receipts and payments.

It is very important to know that all unexplained receipts and payments during year will be treated as income under section 69 by Assessing officer at the time of assessment. You will have to pay the additional tax and interest liability at later stage.

Compliance Form 15G and 15H requirements to avoid TDS

It is also the time to comply with submission of Form 15G or 15H to avoid TDS deduction on interest on your term deposits. Form 15G can be filed by investors below 60 who do not have any tax liability and whose total income from interest is below Rs. 2.5 lakh. Form 15H is for individuals above 60. It can be filed if the final tax on the investor’s estimated total income is nil. So, if you are above 60, your taxable income can be up to Rs. 3 lakh for you to be eligible for 15H. For super senior citizens above 80 years, this limit is Rs. 5 lakh.

Avoid accepting/repaying loans/deposits in cash

At times taxpayer who’s not aware of certain provisions of income tax act and enter in to the  transaction which on later stage becomes a matter of penalty charge. Section 269SS deals with the provisions related to acceptance of loan/deposit. Any loan or deposit accepted in excess of Rs. 20,000 in a year otherwise than account payee cheque or account payee bank draft is violation of section 269SS. Fails to take proper care of section 269SS, Assessing officer can make the addition of such loan or deposit as income and tax will be calculate accordingly. You may also be asked to pay the penalty as per section 271D which is equal amount of loan.

Similarly, if you have taken any loan by way of account payee cheque or demand draft you should repay such loan only by way of account payee cheque or demand draft. Any repayment in excess of Rs. 20,000 during the year otherwise than account payee cheque or demand draft may be violation of section 269T, Assessing officer can make the addition of such loan or deposit repaid as income and tax will be calculate accordingly. You may also be asked to pay the penalty as per section 271E which is equal amount of loan repaid.

Diversification of income and tax complication

Its normal human tendency to diversified his income. One must also think about clubbing provisions of income tax to minimize the tax liability. Click here to know more on how to manage the clubbing of income.

Strong Paper work for tax filing

As the fiscal year 2015-16 is now over, the tax filing deadline is three months away. But it will be always better if you start putting together the information needed for filing of tax return. Don’t forget to include the interest income on your bank balance/deposits. The tax department will be scrutinizing your interest income. Also add interest you would have earned on investment bonds, National Saving Certificates, time and recurring deposits and other fixed income securities. If you have a home loan or an education loan running, get a certificate of interest to know the deduction you can claim. If you have foreign assets or earned foreign income during the year, start collecting documents right away.

Failure to file tax return may attract penalty of Rs. 5,000/- under section 271F.

Click here to read our earlier article for step by step preparation of tax filings.

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