The start of a new financial year gives us an opportunity to devise a plan to manage our finances. Right from building an emergency fund, to taking adequate insurance cover, tweaking investments and tax planning, this is the right time to chalk out a plan and work on it throughout the year to meet our financial goals.
“The beginning of a financial year can help you update or upgrade your investment plan as you get more clarity on the overall income for the financial year and the tax that could get deducted in the entire year. You can work on an investment plan for the additional surplus you will receive every month after the appraisals,” says Harshad Chetanwala, co-founder, MyWealthGrowth.com.
Here are a few key financial planning and taxation-related tasks that you may consider at the start of a new financial year.
Take stock of emergency funds: Financial emergencies may strike anytime forcing you to dip into existing savings.
If you don’t have an emergency fund yet, start the new financial year to create a separate fund that can meet your financial emergencies. Ideally, use a mix of short-term funds and savings accounts to park funds that can meet at least six months of household expenses.
Are risks adequately covered? Right at the start of a financial year, check whether you have adequate health insurance and life insurance plans. Ideally, you should have life coverage of 10- 15 times of your annual take home income.
Review your asset allocation mix: Various studies have shown that the actual return from your portfolio depends on the asset allocation mix across various asset classes. Start of a new financial year gives an opportunity to review your investments in equities, debt, gold and real estate.
Initiate your tax planning exercise: The right time to do your tax planning is at the start of a financial year. It starts with opting between the old and the new tax regime. “Choosing the right tax regime at the start of the year instead of at the time of filing ITR helps better tax planning and financial planning. Based on the income tax regime chosen, the taxpayer can evaluate the income tax payable amount and make IT-related compliances such as payment of advance tax liability, declaration of investments to the employer, etc,” says Archit Gupta, founder & CEO, Clear.
Salaried employees will have to furnish investment declaration to their employers indicating how much of tax benefits they wish to avail under Sections 80C and 80D, among others. Further, once they get the Form 16 ( for FY 2021-22) from their employer, the time to file ITR (AY22-23) will come calling, which is July 31, 2022, unless extended by the government.
Organise your tax-related documents: Keeping documents such as Form 26AS and AIS handy will help in filing ITR in quick time. “You need to keep the documents ready related to any other income. For example, house rent agreement, capital gains statement, invoices, account books, etc.,” says Gupta.
When you make tax-saving investments, keep a record of the receipts. “Start compiling tax-saving related documents such as life insurance and health insurance premium, donations, and other eligible investment and expenditure receipts so that it is easy for you to accurately compute your income tax liability,” adds Gupta.
For taxpayers with total annual tax liability of Rs 10,000 or more, payment of advance tax has to be made in installments at every quarter on or before June 15.
Also, if you have deposits and have an annual income below the threshold limit, do remember to submit Form 15G/Form 15H in April (even if submitted in previous year) in order to avoid the levy of TDS.
Tips for the year
Choose the right tax regime at the start of the year to plan your investments better
Use a mix of short-term funds and savings accounts to park emergency funds
Keep Form 26AS and AIS handy to file your ITR easily
Submit Form 15G/Form 15H in April to avoid levy of TDS on FDs
Review your investments in equities, debt, gold and real estate. Tweak the mix if needed