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To-Dos before the Financial Year 2020-21 ends!

The Financial Year 2020-21 is coming to an end, here’s a checklist of “To-Dos” for 31st March 2021.

Pay Advance Tax

Advance Tax is the payment of your tax liability before the financial year ends. Under this “pay as you earn scheme”, if your Income Tax liability for the financial year is more than INR 10,000 – you are eligible to pay advance tax.

Here’s how to calculate your Advance Tax liability:

  1. Estimate your incomes: You may earn incomes from various sources in the financial year like Salary, House Property, Capital Gains, Business & Profession, and other sources. Estimate your Income from all sources you are expecting to earn during the financial year.
  2. Subtract deductions and expenses: Deduct all eligible deductions such as tax-saving investments and payments (under the old tax regime) and expenses from your total estimated income.
  3. Calculate your Income Tax Liability: You will arrive at your Net Taxable Income after Subtracting deductions and expenses from your Estimated Income for the Financial year. Based on the applicable Income Tax Rates, calculate your Income Tax Liability for the financial year.
  4. Deduct Taxes Paid: The chances are tax in form of TDS (Tax Deducted at Source) or TCS (Tax collected at Source) has been deducted/collected and deposited on your behalf on incomes such as salary, rent, interest, dividend income, etc. You can refer to your Form 26AS to find the tax credit available to you in form of TDS/TCS and Advance Tax paid.

If your outstanding tax liability after deducting TDS is above INR 10,000 you are eligible to pay advance tax during the year in quarterly installments.

The last date to pay 100% of your Advance Tax Liability for FY 2020-21 is 15th March 2021.
If you miss paying your Advance Tax, a penalty may be applicable u/s 234B and 234C.

Note: Senior citizens and taxpayers opting for presumptive taxation scheme are required to pay 100% of their advance tax only once before 15th March 2021.

Assess opportunities for Tax Loss Harvesting

Tax Loss Harvesting is a lesser-known way to save taxes for a trader or even a value investor.
With Tax Loss Harvesting, you realize your notional losses and set them off against your realized gains, thereby adjusting the tax liability.

Here’s how tax loss harvesting works:

  1. You sell the stocks that have a notional loss and realize the losses before the end of the financial year.
  2. This realized loss can now be set off against other profits and therefore bring down your taxable income.

Tax Loss Harvesting also gives you an unique opportunity to rebalance your portfolio.

Now, let’s say you want to opt for tax-loss harvesting but still hold the stock. You can do so by selling the stock to realize the loss and buy the same stock again to regain the previous position as before.

Plan your Taxes : Old v/s New regime

One of the most talked-about changes was the introduction of the new tax regime under Budget 2020, which came into effect from FY 2020-21. It allows taxpayers the opportunity to choose between the old and the new tax regime.

Under the Old Tax Regime, taxpayer can continue to claim Chapter VI-A deductions for tax-saving investments such as ELSS, NPS, tax-saving Fixed deposits, and expenses including children tuition fees, LIC premium, medical expenses, etc.

Whereas, under the New Tax Regime, taxpayer cannot claim Chapter VI-A deductions, however, enjoy lower tax rates. Secondly, the taxpayer cannot set off and carry forward under the head house property.

If you are opting for the Old Tax Regime but haven’t completely utilized the 80C limit of INR 1,50,000, you still have time till 31st March 2021. A majority of taxpayers make their “catch-up investments” in Q4 i.e. the last quarter of the financial year.
Some of the most popular tax-saving investment instruments u/s 80C are ELSS (Equity Linked Savings Scheme), EPF, PPF, ULIP, Tax Saving Fixed Deposits, etc. So make sure you have made all the tax-saving investments and expenses to utilize the benefits of Chapter VI-A deductions by the 31st March 2021.

Not sure which Tax Regime is better for you?

Got questions? Shoot ’em

File ITR or submit corrections

The due date to file your Income Tax Return for FY 2019-20 (AY 2020-21) was extended several times in the last year due to Covid-19. The due date to file the original return when Tax Audit is not applicable was 10th January 2021, and it was 15th February 2021 – when Tax audit was applicable.

In case you missed filing your ITR within the due date, you can file a belated return before 31st March 2021 to get the refund for the excess tax credit available to you. However, you won’t be able to carry forward your losses when filing a belated return. You can also reduce the chances of getting a notice from the Income Tax Department, especially after the CBDT partnerships with organizations like SEBI, CBIC, and MoMSME.

Additionally, if you have filed your ITR on time, but missed reporting or misreported your incomes, you can rectify it by filing a revised return before 31st March 2021.

Link PAN with Aadhaar

It is mandatory to link your PAN with Aadhaar, in case your PAN is not linked with your Aadhaar by 31st March 2021, your PAN will be deemed to be invalid.

Got questions around any of these? Shoot ’em on TaxQ&A and we’ll take care of the rest.

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