The financial year-end is just around the corner, and therefore, it is prudent to take precautionary steps to avoid tax liabilities.

To achieve this successfully, there is proper planning and organization required, and to help you with it, we have compiled all the information about what you need to do before the fiscal year ends.

Year-End Activities – Characteristics and Importance

In India, all the tax obligations of employees and collecting proper documentation to present for all the investments made by the employee, are of utmost importance. Hence, before the end of the fiscal year, the declaration must be done by all employees for their tax liabilities in compliance with the Income Tax Return (IT-R) Rules.

List Of Year-End Activities You Must Not Miss

Now that you are well-aware of the significance of year-end activities, let’s take a deep dive into the most important ones:

Verify Personal and Tax Information

Just before you run your last payroll of the fiscal year (February-March), you must verify and update your employees’ personal and tax information. This is done by submitting the investment declaration forms that are either declared by the employee at the beginning of the fiscal year, or at the time of their joining. Once this signed form is received by the employer or the payroll company, they can use this information to calculate their tax-deductible amount and start withholding the applicable amount from their salaries on a monthly basis.

Triple Check Your Salaries, Benefits, Wages, and Taxes

One of the most important parts of being prepared for payroll at the year-end is being accurate in your reporting. Here are the steps you can follow to achieve optimum accuracy for this activity:

Step 1– The hourly-pay rates and the salaries of the employees entered should be correct.

Step 2– The supplemental wages like overtime, bonuses, severance pay, commissions, etc. should be kept in the reports to avoid any confusion.

Step 3– If you offer any benefit plans for your employees, those should factor into your reports. The types of plans, the benefits availed, etc. should all be accurately recorded and reported. Moreover, employer and employee contributions should also be correctly registered.

Step 4– Other elements such as child support, special tax items like tip allocation and fringe benefits, expense reimbursement, etc. should all be accounted for.

Tax Deductions

Under Section 80C of Income Tax Regulations, employees can be exempted from taxes if they invest in tax saving schemes such as ELSS funds, PPFs, or some specific types of insurance. But that’s not it. Tax deductions can also be claimed by the employees if they’ve incurred the following expenses:

• Home Loan Repayment: The total amount of Principal EMI repayment on home loans can be claimed by the employees for tax deductions from the gross net income in the financial year.

Under Section 80C, you can claim tax deductions up to 1.5 lakh rupees for Principal repayment. Under Section 24, Interest amounts provide you tax deductibles of as much as 2 lakh rupees for a self-occupied house.

• Tuition Fee for Schools/Colleges: If the employees’ children are pursuing a full-time course in a school or college, the tuition fee that they pay can be claimed for tax deductions from the gross taxable income.

The tuition fee reduces the employees’ total gross income which reduces their tax liability. The limit under Section 80C for tax deductions for the Tuition fee is 1.5 lakh rupees. The percentage of tax paid from the total gross income is the percentage of tax deductions applied to the total tuition fee paid for that financial year.

• Construction of Purchase of Residential Property: Charges such as registration fees, stamp duty, and other charges that are incurred for the purpose of buying the residential property are eligible for tax deductions.

Employers must collect all the viable proof of investments from their employees to recalculate the tax liabilities of their employees for the months of February and Mar

 Reconciliation of Payroll

Once the fiscal year is coming to an end, balancing all your employees’ last paycheck becomes a process that requires meticulous attention. One more thing to take care of here is issuing proper notifications to the employees who might have uncashed paychecks.

Moreover, with the start of the new financial year, the employees have to be issued Form-16 as it would be imperative to provide the employees with documented proof of their tax deductions.

Conclusion

Pay special attention to your payroll processing in the year-end because if anything goes wrong, then you won’t be able to correct it later.

Payroll tools such as Paybooks can ensure that the deadlines for payroll in February and March can be adjusted for seamless payroll management. This makes following through with all the year-end activities for payroll management more convenient.

Author –

Lingappa A