With just a few days left for the financial year to end, here are three tax related tasks—filing returns of previous years, investing in tax-saving instruments and booking long-term capital gains (LTCG) from equities that one must complete to start the next financial year on a secure footing.
File returns for previous years
As per Section 139(1) of the Income Tax Act, the due date for filing income tax return (ITR) is July 31 of every assessment year for individual / Hindu Undivided Family. An assessee can file a return within two years from the end of the relevant financial year. However, the Finance Act of 2016 made an amendment in Section 139(4) and the time limit for filing of return has been reduced from two years to one year from the end of the financial year. If you have not filed income tax returns for FY16 and FY17, then file it by March 31.
However, if you have incurred any loss, you won’t get the benefit of carrying forward the loss like business loss, short-or long-term capital loss in the next financial year. Also, if you have made any mistake in filing before the July deadline and want to revise the return, then do it before March 31 as a tax payer can file his revised return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of assessment, whichever is earlier. There are penalties and interest for filing tax returns late. A taxpayer who files a late return will have to pay a penalty of Rs 5,000 and even interest on the tax amount due.
Complete tax-saving investments
Under Section 80C of the Income Tax Act, a taxpayer gets deductions of Rs 1.5 lakh for investments in Public Provident Fund, life insurance premium, National Savings Certificates, 5-year bank or post office deposits, equity-linked savings scheme, principal repayment for housing loan, etc. If you have not invested in these tax-savings schemes, do that before March 31 to save tax up to Rs 45,000 depending on your income slab.
Moreover, under Section 80D, medical insurance premium of up to Rs 25,000 paid for self, spouse and children will qualify for deduction. Also, a taxpayer can invest in National Pension System, which is an ideal investment tool for retirement planning where up to 50% of the contribution of non-government employees can be invested in equities (index funds) and the rest between corporate and government debt paper. Tax exemption is allowed for up to Rs 50,000 in a year under Section 80CCD, which is over and above the benefit available on Rs 1.5 lakh under Section 80C.
Book long-term capital gains from equities
From April 1, LTCG arising out of the sale of equity and equity mutual funds, held for more than one year will be taxed at 10% without benefit of indexation. However, LTCG of up to Rs 1 lakh in a financial year is exempted and LTCG accumulated till January 31, 2018, is exempted from tax. For equity purchased before July 31, 2017, the acquisition cost is higher of the (a) actual acquisition price or (b) the highest
price observed on January 31, 2018.
Experts suggest booking gains from equities trading above January 31 prices. One should not sell those stocks that have done well in the past, but are currently trading below their January 31 prices as tax authorities will not treat the fall since January 31 as a short-term capital loss. As Rs 1 lakh of gains are tax-free at the end of every year, one can sell some equity investments and immediately buy them again. Since the markets will be closed on March 29 and March 30 due to holidays, your last chance to sell securities and make tax-free gains is on March 28, 2018. Although the saving is Rs 10,000, this would compound and can make a lot of difference if one does it for a long time with the power of compounding.