In India, Financial Year is from 1st of April to 31st March every year. Hence, 31st March is an important date by which important financial obligations should be fulfilled.
It is important for those who are required to follow mercantile system to ascertain the transactions accrued up to 31st March and to properly record the same in the books of account. For the professionals who are mainly following cash system of accounting i.e. recording of the transactions on the basis of actual receipts and payments, the financial year end time line of 31st March is equally important as explained hereinafter.
Here is a checklist of 12 important activities every businessman should complete before 31st March 2016.
1) Calculate Payable Advance Tax
Income tax follows the principle of “Pay As You Earn”. Therefore during the financial year from 1st April 2015 to 31st March 2016 Advance Income tax was payable on or before 15th June 2015, 15th Sept 2015, 15th Dec 2015 and 15th March 2016. If an assessee has not paid at least 90% of his tax payable by way of advance tax on or before 31st March 2016, interest will start from 1st April 2016 till the month of the payment.
Hence an assessee should calculate his estimated taxable income as accurate as possible, calculate the tax liability and deduct the Tax Deducted at Source (TDS) to arrive at the total advance tax payable and pay the same before 31st March 2016. It is necessary that the advance tax paid should get credited to the account of central govt. before 31st March 2016 and should receive the challan serial number along with date of 31st March 2016 or before. A mere deposit before 31st March 2016 is not sufficient.
2) Calculate Service Tax Dues
As per the Service Tax Rules, it is necessary to pay service tax dues for the last quarter of the financial year i.e. 1st January 2016 to 31st March 2016 on or before 31st March 2016. Interest will be levied if the payment if not made on or before 31st March 2016. It is also necessary to pay service tax dues from 1st April 2015 to 31st December 2015, if not already paid.
Also read about new Swachh Bharat Cess (SBC).
3) Make Investments To Save Tax
Make investments eligible for deductions under Chapter VI A. Subject to certain conditions, different types of assesses are entitled for deduction of specified amount from Gross total Income before arriving at the Taxable Income e.g. Individuals and HUFs are entitled for deduction u/s 80C of the Income Tax Act for a deduction up to an amount of investments of Rs. 1,50,000/- and an additional deduction of Rs. 50,000/- u/s 80 CCD for investments in National Pension Scheme (NPS) subject to certain terms and condition.
Further deductions on account of payment of premium for health insurance u/s 80D, donations u/s 35AC or u/s 80G are allowable only if the investment/ payment has been made on or before 31st March 2016.
4) Manage Physical Inventory
Take a physical inventory of Raw Materials, Work In Progress, Finished Good, Stores & Spares, Loose Tools, Consumables etc as on 31st March 2016. Also compile information of its market value as on 31st March 2016 which would be essential at the time of valuation to be adopted in the Balance Sheet as on 31st March 2016.
5) Purchase Of Fixed Assets For Business
Purchase asset to claim depreciation (half of specified rate of depreciation). If any tangible or intangible fixed asset has been purchased for the purpose of business during the previous year and is put to use for the purpose of business or profession for the period of 180 days or more, depreciation will be allowed at the percentage prescribed for that kind of asset.
If the asset has been put to use for the purpose of business or profession for the period less than 180 days in that previous year, the depreciation shall be restricted to 50% of the amount calculated at the prescribed percentage.
Hence, if you are planning to purchase any fixed asset for the purpose of use in the business, purchase it and put it to use for business purposes on or before 31st March 2016 so as to avail deduction of depreciation at least at the rate of 50% of the normal rate of depreciation.
If you are planning to sell any fixed asset, try to differ the sale, if possible to 1st April 2016 so as to avail deduction of depreciation for the financial year 2015-16.
6) Claim Additional Depreciation And Incentive
For manufacturing unit, you can purchase asset to claim additional depreciation. In respect of new plant and machinery purchased and install after 31st march 2005 by an assessee engaged in the business of manufacture or production, additional depreciation of 20% of the actual cost of the plant and machinery will be allowed as depreciation subject to certain terms and conditions. If such plant and machinery is purchased and put to use for less than 180 days, additional depreciation would be allowed at the rate of 10% subject to certain other terms and conditions.
Hence, a manufacturing unit can avail this additional deduction of depreciation by purchasing plant and machinery and putting it to use on or before 31st March 2016. Certain categories of assesses are eligible for deduction of incentive @ 15 % for acquisition of new plant & machinery before 31st March 2016.
7) Find Out Capital Gains
If an assessee has taxable capital gains during the financial year 2015-16, he can try to identify his capital assets, especially shares, Mutual funds, debentures etc, which if sold during the financial year, will result into a capital loss, he can sale such assets on or before 31st March 2016 and book a capital loss which will help to set off against the taxable capital gain and as a result will reduce or nullify the capital gains tax. As a matter of planning the same capital asset can again be purchased on or before 31st March 2016 and continued to be held.
8) Account For Unabsorbed Capital Losses
If an assesse has a carried forward Capital loss relevant to the AY 2008-09 i.e. prior to 8 assessment years, which could not be fully set off against Capital Gain for the AY 2009-10 to 2015-16, it will laps if it could not be set off against the Taxable Capital Gain for AY 2016-17.
Hence, if the assesse has a possibility of having taxable Capital Gain for Financial Year 2015-16, he should not postpone it to the next year, but book the gain on or before 31st March 2016 so as to set off the Capital loss of AY 2008-09 against the Capital Gain for AY 2016-17.
9) Cleanup Your Loan Accounts
Verify loan accounts and cleanup them up if necessary. If an assessee has given or taken any temporary loans, hand loans and are outstanding, try to repay / recover the same on or before 31st March 2016. This will help in improving the balance sheet position of the ratio of assets and liabilities, Debt Equity Ratio etc. Temporary loans, hand loans can be again given or taken on or after 1st April 2016.
Since the balance sheet will be prepared as on 31st March 2016, try to square off the assets and liabilities which would show unfavorable position if not squared off on or before 31st March 2016.
10) Manage Professional Income & Expenses
In respect of professions following cash system of accounting, business expenses are allowed to be deducted only if they are actually paid on or before 31st March 2016. Hence, it is advisable to make payments of all business expenses related to the period up to 31st March 2016 on or before that date.
Professional Receipts: In respect of professionals following cash systems of accounting, deposit all professional receipts in bank account before 31st March 2016 without pushing it into the next financial year. This is because the payer must have deducted TDS on the same and will file TDS Return by showing the amount paid to you along with corresponding TDS.
11) File Income Tax Return
Time Barring Return for A Y 2014-15: 31st March 2016 is the last date to file pending Income Tax Returns, if any up to the period ending on 31st March 2014 i.e. for the financial year 2013-14 relevant to the assessment year 2014-15.
Pending Return for A Y 2015-16: If you have not filed your income tax return for the financial year 2014-15 relevant to the assessment year 2015-16, file such pending Income Tax Return for A. Y. 2015-16 on or before 31st March 2016 to avoid penalty of Rs 5,000/-
12) Account For Unabsorbed Business Losses
If an assesse has a carried forward business loss relevant to the AY 2008-09 i.e. prior to 8 assessment years, which could not be fully set off against the business income for the AY 2009-10 to 2015-16, it will laps if it could not be set off against the business income for AY 2016-17.
Hence, if the assesse has a possibility of having taxable business income for Financial Year 2015-16, he should not postpone it to the next year, but try to set off the business loss for A Y 2008-09 against the Business Income for AY 2016-17.
Its always great to keep this checklist handy during the financial year end activities. A good accounting software can help you prepare better for the coming financial year so that you can avoid last minute stress. Please feel free to ask questions in the comments section below.