7 Tax Planning Checks to Carry out Before You File ITR for FY 2023-24

Tax planning is among vital measures for financial planning as the main objective is to reduce tax liability to the fullest while simultaneously adhering to legal obligations and requirements. Notably, paying taxes eats up a significant portion of your savings, and this scenario occurs if you are not fully aware of the tax benefits and do not take into account various tax planning activities.

Since tax season is approaching, an emphasis on a few tax planning activities now can make a big difference when filing your ITR for FY 2023-24. Ideally, to minimise the tax burden, you should avoid resorting to last-minute tax-saving exercises; it can lead to impulsive decisions, and you may end up losing out on the opportunity to implement an effective tax-saving strategy, which may also lead to insufficient tax savings and stress.

[Read: ITR Filing Made Easy: Document Checklist for FY 2023-24 Tax Season]

However, you can save on your taxes by doing simple things like paying advance tax and making tax-saving investments on time to avoid any hassle ahead. Here are some important tasks you must complete before filing ITR for FY 2023-24:

1. Link Your PAN with Your Aadhaar

As the income tax department has launched a new e-filing portal for taxpayers, linking your PAN and Aadhaar is a vital aspect of the e-filing process. While filling out the ITR form, you will be required to e-verify through the Aadhaar linked OTP option, which wouldn't be possible if you fail to link your PAN and Aadhaar.

The last date to link PAN and Aadhaar without a penalty was June 30, 2022, which was further extended for a year to June 30 2023. If you did not link your Adhaar-PAN by June 30, 2023, then the current status of your PAN card is inoperative. However, now to reactivate your PAN and link your PAN with Aadhaar one needs to pay Rs 1,000 as a penalty.

2. Payment of Advance Tax

Advance tax is the income tax that is paid in advance instead of lumpsum payment at year-end. As per Section 208 of the IT Act, 1961, every individual whose estimated tax liability for the year is Rs 10,000 or more shall pay his tax in advance, in the form of 'advance tax'. It is paid in 4 instalments as guided by the IT department, where 15% of the tax liability is paid by June 15, 45% by September 25, 75% by December 15, and 100% by March 15 of the existing financial year. However, if you have an additional income like capital gains or have changed your job, you might need to calculate and pay advance tax.

In case you have not yet paid the entire advance tax liability for 2023-2024 by March 15, then you have the chance to pay it by March 31, 2024. Post March deadline, 1% interest per month has to be paid on the due amount till the payment or filing of ITR. However, it does not apply to senior citizens, those of age 60 years or above, who do not have income from business or profession.

3. Submission of Investment Declarations and Proofs to the Employer

For salaried individuals, the accounting department of your company would have sent you an email asking you to make a declaration of your intended investments. Please be aware that while an individual may make tax-saving investments that are different from those they previously reported, the deduction from taxable income will only be granted on the basis of the actuals provided, not the planned declaration made earlier.

If the documents are not submitted, then your employer will deduct higher TDS on salary income till the time actual proof or investment declaration is submitted. None of the investment proof documents are required to be submitted to the income tax department while filing the income tax return. It is the employer who receives them and deducts taxes on salary accordingly.

As a result, you must be sure to submit any investment declarations to your employer in a timely manner before the end of the fiscal year. In contrast, if you are a non-salaried individual earning from a business, you may ensure to keep all relevant tax-related documents and receipts handy before filing your ITR.

[Read: Keep These Documents Ready to File Your ITR on Time!]

4. Choose Between the Old Tax Regime and the New Tax Regime

Effective from FY 2020-21, a salaried individual has the option to choose between the new tax regime and the old/existing tax regime. You would have been asked by your employer to inform them about the tax regime you are planning to opt for in the current FY 2023-24.

If an individual has opted for the New Tax Regime, then they are not required to submit any document or investment proof to the employer. No tax deductions and exemptions are applicable under the new tax regime, except for NPS contributions by an employee. This deduction is available under Section 80CCD (2) of the Income-tax Act, 1961.

On the other hand, to prevent a hefty tax liability, if the Old Tax regime is opted, then investment proofs must be submitted before the deadline specified by your employer.

Moreover, there is no change in the tax slabs as announced by the Finance Minister in the Union Budget 2024, individuals with a net taxable income of up to Rs 5 lakh will be eligible for tax rebate u/s 87A, which means their tax liability will be nil in both the new and old tax regimes.

Thus, this is a relatively new dilemma for taxpayers, and it is vital that one should choose between the old vs new tax regime before filing your ITR for FY 2023-24. Compute the tax payable by you according to considering the different slab rates under both regimes and decide which one should you plump for.

5. Make Sensible Tax-saving Investments

If you have not done tax savings for FY 2023-24, then you still have some time in hands, to complete the task. Under section 80C of the Income Tax Act, you are enabled to claim for the tax deduction with the highest limit of Rs 1.5 lakh, provided you have chosen the old tax regime. Some of the tax-saving instruments for investment in 2024 include Public Provident Fund (PPF), Equity Linked Savings Scheme (ELSS), National Pension System (NPS), Sukanya Samriddhi Yojana (SSY) and Fixed Deposits (FDs) of 5 years or more. You may invest in them as per your suitability.

Capital gains arriving from the sale of mutual funds, dividends received on shares and interest earned by investors on bank deposits, post office savings and deposits with non-banking financial transactions are all taxable. Currently, long-term capital gains on shares and mutual funds in excess of Rs 1 lakh a year are taxable at the rate of 10%. Dividends, interest and short-term capital gains are added to income and taxed at the marginal rate applicable to the taxpayer.

Please be aware that failing to declare such income from capital gains could get you in hot water because the tax authorities will have full access to whatever earnings you have made. Thus, make wise tax-saving investments before submitting your ITR, and if you have already made investments, carefully review them to make any necessary adjustments.

6. Check for Your Insurance Premiums

A tax deduction of up to Rs 1.5 lakh is available under Section 80C for premiums paid for ULIPs, and Section 80D allows a deduction for premiums paid for health and medical insurance. To avoid paying excessive TDS on their salary, individuals may ask the insurer to send them a statement for income tax purposes. Please be aware that the premium must be paid by check or electronic transfer from the bank account, not in cash.

To avoid paying taxes on the maturity proceeds, many investors purchase expensive insurance. But, according to Budget 2023, insurance proceeds with a combined annual premium of more than Rs 5 lakh in a financial year will be subject to taxation. This will apply to traditional insurance policies (apart from ULIPs) purchased on or after April 01, 2023. It is, therefore, time to act and buy sufficient insurance coverage before the financial year closes if you are one of those investors who prefer insurance as a tax-saving tool.

7. Align Your Tax Planning to Your Financial Goals

One should always define one's financial goals first, and the right way to approach tax planning is to align it with one's short-term and long-term financial goals. For instance, just because a PPF enables you to take advantage of Section 80C tax benefits does not mean that you should invest all your money recklessly. PPF has a 15-year lock-in period and would block your money if an unexpected emergency arises.

Similarly, ULIPs come with a 5-year lock-in period, and life insurance policies can be unfavourable too in terms of availing the benefits while surrendering your policy before 2 years. Since such tax instruments cannot be prematurely redeemed under any circumstances, allocation in instruments like PPF or NPS can be done for longer-term goals. Moreover, investment in market-linked instruments like ELSS, which has a short lock-in period of three years, offers tax advantages and promotes wealth creation, can be done to achieve your short-term goals.

To conclude...

Before the financial year ends, you should strive to take care of your financial obligations, such as paying off credit card debt and EMIs, assembling all the information you need to file an ITR for the financial year 2023-24 and providing your employer with required documentation of tax-saving investments and expenses. Avoid leaving the financial decisions to the last day of the financial year, as it often leads to mistakes. With smart tax planning, you can enjoy your income to the fullest and achieve your financial goals as well.

For a better understanding of ITR filing for FY 2023-24, you may consider reading...

[How to File Your ITR Online for FY 2023-24 And AY 2024-25]

[12 Mistakes to Avoid While Filing Your ITR Online]

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MITALI DHOKE is a Research Analyst at PersonalFN. She is an MBA (Finance) and a post-graduate in commerce (M. Com). She focuses primarily on covering articles around mutual funds including NFOs, financial planning and fixed-income products. Mitali holds an overall experience of 4 years in the financial services industry.
She also actively contributes towards content creation for PersonalFN’s social media platforms in the endeavour to educate investors and enhance their financial knowledge.
 

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.