Money Moves: New Financial Year, New Beginnings

All of you would agree that 2020 was the toughest and one of its kind. There was massive unemployment, pay cuts, shutting the business, and the troubles faced by migrant labourers. The stock market went wild. And all of this happened because a person ate a bat!

But the new year brings new hope. So, let's understand how you can improve your financial planning through these seven strategies. 

Smart Money Moves to make as a new Financial year begins

Here are 7 money moves to make as a new financial year begins

Fully Exhaust PF Contributions

Until the previous year, the Employee Provident Fund and Public Provident Fund were the best tax havens for Indians. Here, people got a deduction under 80C up to Rs 1.5 Lakh on contribution. What's more, the interest earned was also exempt from tax. And the interest rate is among the highest among debt instruments. You could get a tax-free return of 8.5%! 

But this tax haven is being snatched away by the government, as tax will be levied if the annual contribution exceeds Rs 2.5 Lakh. Although the interest rates are falling consistently, it remains the highest risk-free returns after tax. So, try to exhaust these benefits by contributing Rs 20,833 per month. The interest on the excess contribution will be taxable. So, the returns will be effectively lower. So, plan your investments accordingly by looking for other alternatives. 

Invest in Small Savings Instruments

It is rightly said, "Time and Tide wait for none." Recently, you might have read about the slashing of interest rates by the government. But it got backlashed by retail investors (You know the reason ;-). These interest rates are pegged to government bond yields. And the same has been significantly reduced in recent years. And maybe you may get the same notification soon.

So it is a golden opportunity to invest in small saving instruments such as National Saving Certificates, Kisan Vikas Patra, and Senior Citizens' Saving schemes. The rate at the time of investment continues till maturity. So, invest ASAP in these instruments to get high risk-free returns. Else, you may regret the loss of interest in your investment.

Get Ready to Save Tax

Why give your hard-earned money to the government when you can invest the same? You can save about Rs 45000 as taxes! There are various provisions which can help you in this saving. As mentioned above, Provident Fund is one of the most popular tax-saving instruments. Also, NPS is an attractive instrument that helps in retirement planning, besides saving additional tax.

So, it's better to start saving tax in April to avoid burden during the end of the financial year. If you wait till the end, some investment options may not be available. So, invest the money and get returns rather than paying it as taxes to the government. But, if you are too lazy to do so, you can still save some taxes by opting for a new tax regime as a last resort.

Assemble the tax paperwork!

The due date to file tax returns is 31st July, which is four months away. So, you might be wondering why to hurry? But, don't forget that tax procedure can become as complex as Tenet. So, it's better to collect all the required documents. Also, verify your 26AS to ensure that the tax deducted has been deposited on your behalf. 

Now, dividends will also be taxable. So, examine your bank and Demat statements to check for interest, dividend, and capital gains. You might be hearing this again and again. But don't forget to link your PAN Card with your Aadhaar Card. Although the CBDT has extended the deadlines for many years, it's better to be on the safe side. Hence, remember to do the same before 30th June 2021 to avoid any problems in the future.

Avoiding Tax Deduction Is Better Than Claiming Refund

With the ease of tax structure, it has become effortless to get tax refunds. But it is still preferable to avoid tax deduction by filling the specified forms. E.g., To avoid TDS on bank interest, you have to submit Form 15G. Filing these forms helps you receive the entire interest if you don't have to pay tax on your income. 

It is so because the Income Tax Department is not generous enough to pay you high interest on excess tax. The maximum interest rate, in this case, is 1%! So, it's better not to let tax deduct in the first place. Then, you can invest it to get high returns and avoid the hassle of getting refunds.

Weeding Out Underperformers

2020 was a historic year for the stock market. From seeing lower circuits in March 2020 to doubling the indices in just a year, we have come a long way. While some stocks became multi-baggers, some of them destroyed wealth rather than creating it. 

So, the new year is an apt opportunity to review your portfolio. It is rightly said, "Bull markets are a good time to sell your mistakes." It is better to sell the underperformers before incurring more losses due to them. The change in the portfolio may cover up the losses and reverse the picture! It also reduces the risk against shocks.

Not only this, but selling the loss-making stocks can also reduce the taxes to be paid by setting off losses against capital gains. That is why it has become customary for the markets to fall in March, especially during the end.

Term-Plan: An underrated instrument

A term plan is the best type of long-term insurance available at low premiums. While people realized the importance of health and life insurance, the demand for term plans has significantly risen. Also, the increased claims due to the pandemic have led to an increase in premiums. The premium rose by 4.5% in just one quarter! 

So it's better to buy term plans as early as possible, to get maximum coverage at the lowest premiums.

Final Remarks

With the commencement of the new financial year, it is time to take steps to change your life. Contribute Rs 2.5 Lakhs annually to EPF to get high tax-free returns at zero risks. Invest in saving instruments like NSC and KVP now to get more returns. Save taxes by availing of deductions and invest them. Assemble tax documents to avoid last-minute trouble, avoid tax deduction by filling the required forms and sell the underperformers. Lastly, buy a term plan.

In the end, remember that every day is a new year for you if you're willing to work on your resolution. So, don't wait for another new year to change yourselves and do it now --

"One day or day one, you decide.