A new year is about to arrive, and everyone is in stocktaking mode. However good or bad this year was, you will surely do everything possible to make better decisions next year. Better decisions start with planning, not just resolutions. In order to achieve better savings, better returns, and better financial stability, it is crucial to make a financial plan at the beginning of the year. And while you make your financial plan, you should also include tax planning in it, as taxes can change your plans and you need to be ready for that. Here is a tax planning guide 2020 which includes the key points to remember for managing taxes in the new year.
This had to make it to the top of our tax planning guide 2020, since this is a basic aspect that new taxpayers might just forget. And beware, this process starts before March itself. You will have to submit your proofs of investments before the 31st of January 2020. Next, if you want to make any last-minute investments under Section 80C (which are not advisable), the last date for doing so is the 31st of March 2020. Your returns have to be filed before the 31st of July 2020. Last year, this date was extended to the 31st of August 2020. But do not wait for an extended deadline. To be safe, finish your return filing before the due date. Finally, you must verify your returns between October and November 2020. Make note of these dates for your personal tax planning guide.
Claim your refunds
You may pay more tax than what you are liable to pay for the year. Don’t worry, you can claim a refund of the extra payment. In the case that you forget to declare your tax-saving investments and tax has been charged on the amount invested, you can still save tax by asking for a refund. This process can be carried out on the official income tax website. Don’t forget to add this point in your tax planning guide or you might end up losing your hard-earned money.
In this financial year, the government has taken multiple measures to encourage digital transactions over cash transactions. One of them was a 2% TDS on total cash withdrawal from one account amounting to more than Rs. 1 crore. Another measure was the mandate for businesses with an annual turnover of more than Rs.50 crore to make low-cost digital modes of payment such as BHIM UPI, Aadhaar Pay, etc. available to customers.
If you have invested in the National Pension Scheme and your scheme’s maturity is due, it might be a good time to withdraw. Snap shot of benefits:
- On retirement, one may withdraw 60% of the corpus which would be tax exempt. 40% of the withdrawal would have to be invested in purchase of annuity. Pension received is treated as Income and will be taxed appropriately, if falling into any tax bracket.
- Partial withdrawal will be tax exempt (permitted after 3 years for higher education or marriage of children, prescribed illness, construction of house for first residential house).
- The withdrawal under this option is allowed only for the employee’s contribution. Contribution for availing of tax benefits u/s 80CCD (2) is treated as Employer’s Contribution and withdrawal is not be permitted for this contribution.
- Premature exit is allowed after 10 years of holding the account– 20% can be withdrawn and will be taxable. Balance 80% would need to be invested in purchase of annuity.
Make this a part of your tax planning guide before any possible changes in the new budget.
Mandatory ITR filing
In order to widen the tax base, ITR filing was made mandatory for the following entities in the recent amendments brought in. If you fall under any of these and haven’t prepared your personal tax planning guide yet, it is time to do so:
- Entity whose deposits in current account in a bank or co-operative bank exceed Rs 1 crore in the financial year
- Entity whose expenses of foreign travel exceed Rs 2 lakh in the financial year
- Individual who has incurred electricity bills of Rs 1 lakh or more in the financial year
Look beyond Section 80C
It is a misconception that Section 80C is the only available scope for tax-saving. Your term insurance or other life insurance isn't the only instrument you have. When you make your tax planning guide 2020, make sure you take note of Sections 80D, 80DDB, 80E, 80G, 80GG, 80GGA, 80GGC, 80TTA, and 80U as well. There are various donations, premiums, and expenditures that are deductible under these sections. However, as a first step, to get started, you can check out term insurance plans and go from there. To know more about Term Insurance, browse the website for various Term Plans offered by PNB MetLife.
Don’t buy unnecessary insurance plans or loans in March
This is probably the most common mistake you can make when you don’t have a personal tax planning guide. As the end of the financial year comes closer, you might receive calls from companies trying to sell policies and loans. They might sound necessary in the wake of tax-saving requirements, but they might actually be unnecessary for you. Don’t buy them in haste and then regret them later. Do your research no matter how late it is.
Make your 2020 a best planned financial year!
- *Tax benefits are subject to conditions and other provisions of the Indian tax laws and are subject to amendments made thereto from time to time.
The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice from before you take any/refrain from any action. Tax benefits are subject to changes in tax laws. Please contact your tax consultant for an exact calculation of your tax liabilities.
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