Tax season 2024: Top 3 points one must note before the financial year ends

Tax season 2024: Around this every year, the majority of corporate entities ask their employees to provide verification of investments. The basis for tax computations is largely dependent on the documents submitted by taxpayers, which decides the amount of taxes payable at the final level. Understandably, this has resulted in salaried professionals dedicating substantial efforts towards ensuring that their paperwork is properly organised and thorough.

Taxpayers should note a couple of points before the financial year closes:

1. Income and tax

First, the taxpayers should ascertain their tax-saving requirement based on their current year's income. Reviewing your tax-saving needs annually ensures you invest adequately according to your income. Employees receiving a salary and business professionals have the option to transition between the old and new tax regimes annually. On the other hand, individuals falling outside these categories are permitted to switch between the old and new regimes only once in their lifetime. The income tax exemption limit is up to Rs 2,50,000 for Individuals, HUF below 60 years aged and NRIs. 

Joining a new company or organisation mid-year necessitates submitting Form 12b under Rule 26A. This form reveals past income information. Although new employers can't compel submission, it's wise to do so for tax reduction and effective tax planning.

2. Tax saving instruments

It is a known fact that taxpayers can get tax deduction benefits under Section 80C, up to a limit of Rs 1.5 lakh. Therefore, one should figure out what all tax instruments will be covered and considered under Section 80C. If your income surpasses estimates, invest more in tax-saving tools, like fixed deposits, ELSS, post office savings scemes, before the year ends. 

If you find that you still have room for more investments, then you can invest in instruments such as fixed deposits, PPF, which can give you assured returns by the time they mature. 

3. Tax-Loss Harvesting

Tax-loss harvesting is a practice of selling a security that has incurred a loss to help investors reduce or offset taxes on any capital gains income subject to taxation. Long-term capital gains up to Rs 1 lakh in a financial year on eligible equity instruments are tax-exempt. Gains exceeding Rs 1 lakh are taxed at a rate of 10%.

If taxpayers adopt tax harvesting practices, taxes can be saved further. In tax harvesting, you must sell the shares before the end of every financial year to the extent of LTCG of Rs 1 lakh and reinvest in the same stock again. This way, the LTCG tax on your equity investment can be lowered significantly in the long term.

Also read: Income Tax: CBDT sets outstanding tax waiver limit at Rs 1 lakh. How to check status?