How to close year-end accounts?

The previous financial year just got over on March 31, 2021. It is widely known that the end of the year is a busy time for all businessmen who take stock of inventory, passing closing entries in the books of accounts, etc. The lesser-known fact is that individual taxpayers also have to organise several things to close the year-end transactions. A noteworthy list of tasks is discussed here.

Bank Statement – Every taxpayer can download the bank statement, in pdf format, for the Financial Year (April 1, 2020 to March 31, 2021) and save it in a folder, preferably in cloud storage. An excel version of the statement can be used to make short notes about the nature of income or expenditure against each transaction. This exercise will help to determine the income credited to the bank account, which has to be offered to taxes.

Home Loan Statement – As you know, those who have housing loans are eligible to claim tax deduction towards repayment of principal amount up to Rs 1,50,000 u/s 80C and interest up to Rs 2,00,000 u/s 24. In order to avail these deductions, one has to obtain Interest Certificate from the Bank. This is the right time to get this task done.

Obtain TDS Certificates – The employer has to issue Form 16 towards TDS on salaries. Banks and other institutions who have deducted TDS on Interest, fees, commission, etc., have to issue Form 16A. Check the status and follow up with the concerned people!

Proof of Loans – While analysing the bank statement, you may recall the hand loans given to or taken from your friends or relatives during the year. Such loans are given on trust and thereby you hesitate to ask for any written document as proof of receipt /payment.

However, from the taxmen’s point of view, one has to obtain a confirmation letter mentioning the name of the person, his PAN number, address and the transaction details. In case the tax department scrutinises your case, this document will come in handy to prove the source of remittances.

Submission of Form 15G/15H – April is the month to submit the self-declaration form by individuals to the bank requesting not to deduct TDS on interest income. Make time and complete this task as early as possible.

Property Taxes – If you have let out property, municipal tax paid is eligible for a tax deduction. Check and preserve the tax paid receipt to claim while filing Income

Tax Return. Assets and Liabilities Statement –Individuals having total income exceeding Rs 50 lakh during the year, mandatorily have to fill Schedule AL in Income Tax Return (ITR). As I have seen, the taxpayers will rush to fill this document at the eleventh hour! April is the month to do this peacefully and accurately. This way, you call pull out all the documents of immovable and movable assets, obtain the loan statements, Fixed Deposit Statement, etc., verify them and arrive at the closing balances as on March 31, 2021.

Pay self-assessment Tax – When you realise that the tax paid on income during the year falls short of actual liability, you can make the payment at the earliest to avoid penal interest by the tax department. Check now and pay off anything due to the Government.

Clubbing of Income – All income derived from the assets transferred to spouse and minor child is to be clubbed in the hands of the transferor and offered to taxes. This means, obtain their bank statement and compute the total income for the year.

Check the credits in Provident Fund - Are you subscribing to Employee Provident Fund (EPF), Superannuation Fund, National Pension Scheme (NPS)? If so, login and check the amount credited during the previous year and confirm all the deductions done from your salary are actually reflecting in the fund. I have seen many cases where the employer has failed to remit the money! Verify.

Earnings from Stock Investments – Those who have liquidated the investments or traded in stocks have to declare the income in ITR. To do this, one has to retrieve the Profit and Loss account for the entire year, from the stock trading account. Do this right away!

Filing Income Tax Return (ITR) - Don’t wait till the last minute, the Government anyway, will not reduce tax rates! Keep all the information handy, as soon as you get all the Form 16 and 16A, go ahead and file the return.

Tax Planning - This is another crucial task to be accomplished in April. Instead of waiting till mid of the year, one can plan the saving options to reduce the taxes such as investment u/s 80C, Mediclaim premium u/s 80D, NPS investments u/s 80CCD etc. Always plan ahead.

(The writer is Chartered Accountant and Registered Valuer Bangalore)