Three steps to organize your personal finances this new fiscal year

On March 31, many taxpayers made last-minute investments to reduce their tax burden for the outgoing tax year. In fact, most people often make such investments at the last minute, only to find out later that some of those investment decisions were hastily made and therefore not entirely suitable for their goals.

But that doesn’t have to be your case. You could plan your investments well on time and throughout the year. The best time to make plans for your personal finances would be the start of a new fiscal year, starting April 1.

You could start organizing your finances by estimating your earnings for the year and knowing your assets and liabilities. By gathering all that information, you would ultimately review your financial situation. This process would help you determine how much money you have to save, invest and spend.

Here are three steps to organize your personal finances in the new fiscal year from a tax perspective.

Financial and retirement goals

To get started, assess your financial and retirement goals. Then invest towards your goals according to your risk appetite and time horizon. Depending on these two factors, you can choose between debt and/or equity investments. If you have a high risk appetite with a long-term investment horizon, you may choose to invest in stocks or equity mutual funds.

“You can invest in share-linked savings schemes (ELSS), which have a three-year lock-in period, and save on taxes by claiming up to Rs 1.5 lakh as a deduction from your total income. You could also invest in the Voluntary Provident Fund (VPF) and the National Pension System (SNP) for retirement. NPS allows you to adjust risk based on your risk-taking ability. You could also estimate your expenses for the year and see if those investments would help you save on taxes,” says Archit Gupta, founder and CEO of Cleartax, a tax portal.

If you are paying off a home loan, you can claim the interest paid on the home loan up to Rs 2 lakh. The principal amount refunded is also allowed as a deduction under Section 80C of the Income Tax Act 1961 up to Rs 1.5 lakh.

You should start organizing your personal finances by calculating your annual earnings.

Tax Regime

Decide which tax regime suits you best. Taxpayers have the option to choose between the old and the new tax regime. The new tax regime allows taxpayers to pay taxes at a lower slab rate, although they must forego around 70 deductions allowed under the old tax regime.

“Choosing the tax regime at the beginning of the year instead of at the time of filing the income tax return helps tax planning in a better way. The taxpayer can assess the amount of the tax obligation according to the chosen tax regime, and comply with the income tax provisions, such as declaration of investments to the employer, payment of the tax obligation in advance, among others. If the employee decides to opt for the new tax regime, he may not necessarily invest in income tax savings instruments, but he may opt for other investment options, ”adds Gupta.

File Tax Returns

File tax returns on time for a lower tax deduction. Taxpayers who earn interest income on bank deposits, but have total income below the basic exemption limit, can file Form 15G or Form 15H to not deduct taxes at the source (TDS). Other taxpayers may file Form 13 with the tax authorities for less or no TDS deduction.

If you don’t plan your investments in advance, you won’t be able to declare them to your employer either. If you’re not familiar with various financial instruments, that’s all the more reason to take the time and understand what you need to invest in this financial year.

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