1. Book profits in stocks and equity funds
Long-term capital gains from stocks and equity-oriented funds beyond Rs 1 lakh in a year are now taxable. If you have made long-term capital gains, it is time to book profits in a way that you utilise the Rs 1 lakh tax-free threshold. Sell your stocks and equity funds this week to book a profit of up to Rs 1 lakh and then buy them back in the next financial year.
This simple strategy will reset your buying price upwards and thereby reduce your tax liability when you eventually sell them. But this will entail a small 1% cost for stock investors by way of brokerage paid on the sale and purchase transactions. For mutual fund investors there will be no costs because entry loads have been removed and exit loads don’t apply if funds are sold after a year.
2. File belated tax returns
The final deadline to file tax returns for 2017-18 expires this week. If you still haven't filed your tax return, do it now. You might have to pay a late fee because of changes introduced in last year's Budget. Under the new Section 234F introduced last year, the taxpayer is liable to pay a fee of Rs 5,000 for filing after the deadline. For 2017-18 returns, that date was 31 August 2018. The fee will be higher at Rs 10,000 if the return is filed after 31 December 2018. But not filing the tax return will put you in a bigger soup so don't dilly dally anymore.
3. Lock into 3-year FMPs
Fixed maturity plans (FMPs) of mutual funds are closed-ended debt schemes with a fixed maturity date. Like in the case of debt funds, gains from FMPs held for more than three years are treated as long-term capital gains and taxed at a lower rate of 20% after indexation. The indexation benefit is enhanced if the holding period runs across more than three financial years. Several FMPs available right now will mature in 2022-23 (see table), so you will get four years’ indexation even though the holding period is only 37-38 months.
4. Finish your tax planning
Some taxpayers might not have been able to complete their tax planning for the year. If you are among them, don't panic. You have very little time to study investment options in detail. So don't go for insurance policies and other investments that require a multi-year commitment. Don't also invest a large sum in equity-linked options such as mutual funds and Ulips at one go. Such investments are best made through monthly SIPs.
The best option right now are safe bets such as five-year bank deposits and NSCs. Returns are low because the interest is taxable but you can’t go wrong in these options. Also, bank deposits can be done very quickly with the click of a mouse. Don't wait till the last day to invest in PPF and Sukanya scheme. Give a margin of 2-3 days for cheque to be credited to the account.