5 Changes in March Will Affect Your Wallet; Know How?
As the financial year is about to end, it is time to finish a number of tasks and make important financial planning decisions.
Making the right financial decisions now can help you boost your savings and reduce your tax burden.
The deadline for making tax-deductible investments is March 31.
However, most tax-saving opportunities have lock-in periods. So, do not invest blindly in order to lower your tax liability. This year, it is critical to have a long-term view.
Here are 5 changes that may affect your wallet in March.
1) Last-Minute Investment; Prefer to Avoid it
As the March 31 deadline for making tax-saving investments approaches, complete the process as soon as possible rather than leaving it until the last minute.
Many individuals use the last few months to invest in tax-saving instruments during the financial year ending to claim deductions under Section 80C of the Income Tax Act, 1961, in the old tax regime. The new tax regime does not allow tax benefits under 80C and 80D.
Most tax-saving investments come with a lock-in period. You should always check for the duration of the lock-in period and invest in instruments that align with your investment horizon.
Here are some tax-saving schemes that you can consider investing in:
- Sukanya Samriddhi Yojana (SSY)
- Equity-linked savings schemes (ELSS)
- Public Provident Fund (PPF)
- National Pension Scheme (NPS)
- Employee Provident Fund (EPF)
- life insurance premiums
2. Invest in Special-Tenure FD Schemes
The Reserve Bank of India has lowered the repo rate by 25 Bps from 6.50% to 6.25%. Banks may also lower the rates on FDs in response to the central bank’s reduction in the benchmark lending rate. It presents an opening for the customers to avail higher interest rates on their fixed deposits before banks decrease the rates.
Some leading banks, such as the State Bank of India and the Bank of Baroda (BoB), are offering special-tenure, higher-rate deposit schemes. They provide higher interest rates as compared to traditional FDs.
Bank of Baroda’s BOB Utsav Deposit Scheme offers 7.3% return in its 400-day special tenure, while its regular one-year FD offers 6.85%. On the other hand, SBI’s 444-day Amrit Vrishti scheme offers 7.25 percent as compared to its regular one-year FD, which gives 6.8%.
Investing in FDs is considered a safe and risk-free financial instrument where investors can earn interest on capital.
3. Get Insurance Without Immediate Premium Payment through Bima-ASBA, launched by IRDAI
The Insurance Regulatory and Development Authority of India (IRDAI) has introduced Bima-ASBA (Applications Supported by Blocked Amount), which allows policyholders to block the required premium amount in their bank through UPI (Unified Payments Interface). It is compulsory for insurance companies to provide this facility.
This scheme is designed to make the premium payment process easier and smoother without any immediate deductions. The transfer of money from the individual to the insurer only takes place when their application is accepted by the insurer.
4. Pay your Fourth Installment of Advance Tax by March 15
You may be eligible to pay advance tax if you have additional income sources, such as rent, capital gains or interest. As per the Income Tax Act, if you are a salaried individual and your total tax liability for the year exceeds Rs. 10,000, you must pay advance tax in installments. It has to be paid in four installments, and the last date to pay the fourth installment is March 15.
In case you miss the deadline, you will be charged 1% interest per month or part of the month under Section 234C.
5. Adjust your Losses against your Gains through Tax Harvesting
Tax harvesting refers to the process of adjusting losses with future gains from other investments to reduce your tax burden.
When you sell stocks or equity funds within a year, you will be liable to pay a short-term capital gains (STCG) tax of 20%. While, if you sell it after one year, you will have to pay long-term capital gains (LTCG) tax of 12.5% on gains over Rs. 1.25 lakh.
The short-term losses can offset both short-term and long-term gains. While long-term capital losses can only offset long-term gains.
Assume that you have earned capital gains but you want to avoid tax liability on them. You also have another stock that is at loss but you believe that it will perform well in the future. To offset the losses, you can sell this loss-making stock, recording the loss. This loss can be adjusted against the taxable capital gains, which reduces your tax liability. The next day, you can buy back the same stock if you still think it will grow.
