Making March Meaningful – Tax caution before 31st March Ends

 

Every financial year witnesses some changes & amendments in the tax laws.  It calls for new ways & means to plan and arrange the tax affairs. March emerges as an opportune moment for taxpayers to revisit their tax planning strategies. This is the most appropriate time for the businesses to review its yearly financial activities so as to optimize the tax impact. It’s time to cover our annual feature -Making March Meaningful from a direct tax perspective with the latest changes done by Finance Act – 23.

1. Ensure the payment to MSME within 15 Days/ 45 Days:
   a) 31^stMarch 2024 would be highly relevant & most crucial in view of new section 43B(h) so as to ensure payment to MSME within a period of 15 days or 45 days.
   b) Section 43B(h) as introduced by the Finance Act- 2023 provides that the deduction towards purchase of any goods/services/ expenditure from Micro and Small Enterprises shall be allowed only if the payment is actually made within the prescribed time frame or 15 days or 45 days.
   If any business entity has made purchase of any goods/services from a Micro or Small enterprise and the payment for such purchases or services has not been made during the year and it is outstanding as on 31^st March (except where such outstanding payments as on 31^st March are falling within the period of 15 days or 45 days after 31^st March and payment of the same is made in the subsequent period within the appointed date of 15 days or 45 days), the same will not be allowed as a deduction while computing business income.

Note: There is a fake message in circulation that the provision of section 43B(h) has been deferred by one year. The news is totally wrong & incorrect.

2. Planning for the Right Tax Regimes:
   a) Starting from the 1^stApril 2023, the new income tax regime will be the default tax regime. Taxpayers may do the calculation & check if the old tax regime with benefit of deduction and exemption is still better or the new tax regime without such benefit is better.
   b) Taxpayers may note that the tax rebate limit has been raised to Rs. 7 lakh for the FY 2023-24 if the person is opting for the new tax regime. The enhanced tax rebate limit would mean that the person whose income is not exceeding Rs. 7 Lakh need not invest anything in order to claim exemptions and the entire income would be tax-free irrespective of the investment by such an individual.
   c) There is no change in the amount of standard deduction of Rs. 50,000/- available to the salaried taxpayers. However, earlier the benefit of standard deduction was not available to the taxpayers opting for the new tax regime. Now, the same is extended to the taxpayers opting for the new tax regime.
   d) The investment and deduction may be planned before 31^stMarch by choosing the right & suitable tax regime for each individual taxpayer.
3. Plan for payment of advance Tax including surcharge:
   Taxpayers have to pay the tax in advance in four installments i.e., on or before 15th June (15%), 15^thSept (45%), 15^th Dec (75%) & 15^th March (100%). Though minor variation is allowed, still taxpayers have to ensure the payment of tax by 15^th March itself. Under the present scenario, the interest charged by the income tax department is very high as compared to alternative cost of funds. Taxpayers may estimate the tax liability (including surcharge) and may compensate for the shortfall in the payment of tax in the last installment of advance tax which is due on 15/03/2021.
   Further, in case the taxpayers have failed to estimate the income or under-estimated the income, taxpayers are advised to compensate it by paying the same before 31^st March so as to avoid the levy of interest u/s 234B.
4. Decision to Purchase or defer the purchase of Fixed Assets:
   Taxpayers may review the profitability of their business for the current financial year and may either plan to prepone or postpone the decision of purchasing the fixed assets, car, machinery etc & resultant deprecation claim.
5. Check Annual Information Statement (AIS)/ Form No. 26AS:
   Taxpayers should diligently download and review their Annual Information Statements (AIS) to verify significant financial transactions and TDS-related information. Any discrepancies in TDS records should be promptly addressed through follow-up with the deductor.
6. Cleanup Your Loan Accounts:
   One issue which is often a matter of unnecessary addition, explanation & litigation during the course of income tax proceeding is unwanted debit and credit balances in the books of accounts. It is always advisable to keep the year end balances of loans, creditors, debtors etc. at a lower level as various compliances emerge due to its pendency in the financial statement as on 31^stMarch. If the amount is not payable or receivable, then it is advisable to square off the same so as to avoid unwanted addition or disallowance during the course of assessment proceeding.
7. Harvesting the Loss to optimize tax benefit:
   Let us consider a case of a taxpayer who has earned Long Term Capital Gain (LTCG) on sale of some of his shares which is taxable as income u/s 112A. It often happens that the taxpayer sells only those shares which are profitable and don’t sell the shares where taxpayers may incur loss. In such cases, taxpayers can also book a loss by selling some of the loss making shares which can reduce the taxable profit resulting in tax liability on real income & not just on realized gain. Shares sold at a loss can be purchased on the next day if taxpayers still wish to hold it on a long term basis. Same can be done in respect of business profit wherein outdated inventory, non-recoverable money from debtors i.e., bad debts, can be given due effect
8. Planning for Expenses & Income:
   There are various incomes or expenditures which one can prepone or postpone legally. Review of the financial statements before 31^stMarch can enable taxpayers to plan for its tax impact.

9. Few other activities for March:
   There are various other action points which the taxpayers must consider before 31^stMarch like physical inventory position, re-checking the compliances with the TDS provision on expenses incurred during the year, ensuring that the benefit of carry forward of loss is not lost due to completion of the period of 4 years or 8 years by suitably booking the profit, reviewing the estimated financial position from bank perspective as the rating or interest rate would depend upon the financial ratio as on 31^st March, Reconciliation of the GST returns as adjustment in the same year is advisable as it ensures better transparency and control, Deciding whether to continue with the regular scheme or composition scheme in GST, selling or deferring the decision to sale the capital assets, Planning for the distribution of the dividend of the closely held companies, etc.

Conclusion:

While this article is a recurring feature, its implications, repercussions, and implementation vary annually. At this point, Taxpayers may also prepare a checklist & activity chart for timely return filing. A comprehensive review of the aforementioned points will not only optimize tax impact but also facilitate earlier finalization of books and filing of income tax returns.

 

[Views expressed are the personal view of the author. Readers are advised to seek professional advice before taking any decisions. Readers may forward their feedback & queries at nareshjakhotia@gmail.com.  Other articles & response to queries are available at www.theTAXtalk.com]