Planning Your Budget For A New Financial Year

We are already well into the financial year, and while many of you may have already planned your budget, it’s good to explore your steps. As one of the top mid-size CA firms in Chennai, Consulting and Beyond brings you some relevant tips to plan your budget for this new financial year.

How To Do Budget Planning?

Budget planning involves giving a practical view of the past financial year and assessing expenses to plan for this new financial year. Here’s a breakdown of how to do budget planning when you step into the new financial year:

Step 1: Gather information regarding income and expenses

Information for income: Collect your bank statements, pay stubs, and other income-related documents from the past financial year. This will help you get a realistic idea of your average monthly income.

Information for expenses: Assess your credit card bills, bank statements, and receipts you saved or recorded to categorise your expenses. A few categories we can name are utilities, grocery, transportation, mortgage, rent, entertainment, and debt payment.

Step 2: Use a spreadsheet or online app to calculate your budget

You can use a manual Excel Spreadsheet to add columns to insert data on income, expense categories, and amounts. Alternatively, you could use a budgeting app to connect with your bank accounts. This way, you can easily automate the process of categorizing your transactions and track your spending in real-time.

Step 3: Categorise expenses from fixed to variable and discretionary

It is important to understand how to categorise your expenses. As one of the top mid-size CA firms in Chennai, we are providing an overview of what each category implies:

Fixed expenses stay relatively constant each month and they include monthly rent, insurance, and loan payments.

Variable expenses may fluctuate and they include eating out, buying groceries, and entertainment.

Discretionary expenses are expenses that you could cut back on and these include dining out or paying for unnecessary subscriptions that are no longer of any use to you.

Step 4: Set goals for saving on expenses

You may have some financial goals in mind. Make a list of those financial goals, for instance, saving for a down payment on a house, a vacation, or retirement. Once your list is complete, begin calculating the amounts you need to save for each goal and the time needed to achieve them.

Step 5: Create your budget list and track your progress.

Begin by listing all the sources of your income and then allocate them towards fixed expenses, variable expenses, and saving goals.

Lastly, check if you have left anything out, and allocate that towards discretionary spending or increase your savings.

Once you have created an income list and allocated all expenses category-wise, it’s time to track your progress over time. It’s also time to become more disciplined in your financial record-keeping. For instance, make sure to regularly update your budget with actual income and expenses. Identify areas where you can cut back on making unnecessary expenses, that is, these expenses are delaying you from achieving your savings goals.

What The New Financial Year Has In Store For You

The financial year of 2024-25 has seen some definite changes on the horizon signaling some significant transitions. Let’s explore there:

New Tax Regime Default Adoption – Simplified structure and reduced deductions of the new tax regime. Taxpayers have the liberty to follow the old tax regime. For those who will opt for the new tax regime, the tax rebate under Section 87A of the Income-tax Act, 1961 has been increased. This means that people with taxable up to Rs 7 Lakh will get a full tax rebate if they opt for the new regime. This will absolve them from paying any income tax.

Streamlined Slabs and Expanded Basic Exemption Limit – Minimum tax is increased from Rs 2.5 Lakh to 3 Lakh under the new tax regime. The number of income tax slabs is changed from six to five to simplify tax collections.

Standard Deduction Extension – The standard deduction of Rs 50,000 is also applicable to the new regime as it was for the old.

Reduce Highest Surcharge Rate – The highest surcharge rate has been brought down from 37% to 25%.

Life Insurance Taxation – Maturity proceeds from life insurance policies that are issued on April 1, 2023, and where the total premium exceeds Rs 5 Lakh will be subject to taxation.

Exemption Of Enhanced Leave Encashment – The tax exemption limit on leave encashment upon retirement has been raised from Rs 3 lakh to Rs 25 lakh for non-government employees.

Decreased Corporate Tax Rates – Corporate tax rates are reduced from 30% to 22% for existing domestic companies. For certain new manufacturing companies, 15% has been introduced to encourage fresh investment.

In conclusion, be realistic about your income and expenses, and keep adjusting your budget throughout the year. If you ever require professional assistance in your budgeting journey, seek our expert consultation from our management consultant in Chennai.