5 changes that will impact your wallet in March

As a salaried individual, don't assume you're exempt from paying advance tax.

As financial year 2024-25 draws to a close, it is time to complete a series of tasks and make crucial financial planning decisions.

For one, March 31 is the last date to make your tax-saving investments which are eligible for deductions under Section 80C of the Income Tax (I-T) Act, 1961  - that is, if you find the old tax regime beneficial for you.

However, do note that most tax-saver avenues come with lock-in periods. So, do not blindly invest only to reduce the tax outgo. It is best to treat tax planning as a subset of your overall financial planning strategy and invest in instruments that will take you closer to your financial goals.

It is important to keep the long-term perspective in mind this year, as most taxpayers are likely to find the new tax regime, which does not offer any tax benefits under Section 80C, 80D and so on, more attractive from FY 2025-26 onwards.

Here are the key dates in March and the tasks you ought to do.

Last-minute tax planning? Avoid the rush, start now

As the March 31 deadline to make tax-saver investments draws closer, complete the process at the earliest, instead of waiting till the last minute. Invest wisely, in line with your financial goals, and maximise tax benefits through existing commitments like Public Provident Fund (PPF), National Pension Scheme (NPS), Sukanya Samriddhi Yojana (SSY), monthly SIPs in equity-linked savings schemes (ELSS), Employee Provident Fund (EPF) and life insurance premiums to achieve your tax planning objectives.

Do not buy investment-cum-insurance policies in a hurry to meet the deadline. They entail long-term premium-paying commitments which can strain your finances, if you buy higher ticket-size policies without taking your budget and requirements into account.

Offset capital gains with tax harvesting

Tax harvesting means selling underperforming investments to offset losses and adjusting with future gains from other investments, minimising your tax liability.

This strategy helps investors to optimise investment outcomes and streamline tax exposure. According to capital gains tax rules, selling shares or equity funds within a year will attract a 20 percent short-term capital gains (STCG) tax, and after a year, it will attract a 12.5 percent long-term capital gains (LTCG) tax on gains over Rs 1.25 lakh in a financial year.

Suppose you've earned capital gains but want to avoid taxes on them. Meanwhile, you have shares with unrealised losses, but you're confident of their long-term potential. To offset losses, you can sell these loss-making stocks, and then buy them back the next day. This strategy allows you to book losses, which can be set off against taxable capital gains, while ensuring that your original portfolio stays intact.

Note that long-term capital losses can only offset long-term gains, while short-term losses can be used to offset both short-term and long-term gains. By strategically selling underperforming investments and reinvesting in better opportunities, investors can potentially boost their portfolio's long-term performance, while reducing the tax impact.

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Lock your investments in special-tenure FD schemes

The Reserve Bank of India (RBI), on February 7, reduced the repo rate by 25 basis points (bps) to 6.25 percent, its first rate cut in five years. For depositors, this could signal the beginning of lower returns on their bank deposits.

However, leading banks, such as Bank of Baroda (BoB), Indian Bank and State Bank of India (SBI), are offering special-tenure, higher-rate deposit schemes, introduced in mid-2024, till March 31.

These specialised FD schemes provide higher interest rates, compared to traditional FDs. They are suitable for risk-averse investors who wish to optimise their returns in the short term.

For instance, Bank of Baroda's BoB Utsav Deposit Scheme comes with a tenure of 400 days, while SBI has launched Amrit Vrishti and Amrit Kalash schemes with maturity periods of 444 days and 400 days, respectively. Indian Bank’s Ind Supreme term deposit carries a tenure of 300 days.

Interest rates under the special schemes are higher, compared to regular tenure FDs.

BoB’s one-year FD offers 6.85 percent a year, while its 400-day special tenure FD fetches a higher 7.3 percent return. Similarly, SBI’s one-year to less than two-year FD offers 6.8 percent, whereas its 444-day Amrit Vrishti scheme yields 7.25 percent, offering higher returns for a shorter tenure.

Advance tax alert: Pay your fourth instalment by March 15

If you are a salaried individual, don't assume you're exempt from paying advance tax. If you have additional income sources, such as interest, rent, or capital gains, you may be liable for advance tax. Check your liability under Section 208 of the I-T Act, which requires you to pay tax, if your estimated tax liability for the year is likely to exceed Rs 10,000.

Taxpayers must pay their estimated advance tax liability in four instalments. The final instalment of 100 percent is due on or before March 15. Failure to pay or delayed payments will attract a penalty interest of 1 percent per month/part of the month under Section 234C.

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IRDAI's Bima-ASBA: Buy insurance without paying premium upfront

The Insurance Regulatory and Development Authority of India (IRDAI) has directed insurers to offer UPI-enabled Bima Applications Supported by Blocked Amount (Bima - ASBA) facility to prospective policyholders from March 1.

Thanks to this facility, insurance-buyers will soon be able to buy covers without their account being debited for premiums before their applications are accepted.

It is mandatory for insurance companies to offer this facility.

Modelled on the lines of UPI-linked ASBA for initial public offering (IPO) applications, the premium amount will be blocked until the insurance company completes its underwriting – that is, risk evaluation of the individual’s health, income and other parameters – and takes a call on issuing the policy or rejecting the application.

Besides greater transparency, this will ensure that their funds remain in their savings accounts and continue to earn interest during the period.