Financial Year Closing (FY 2025–26)

As the financial year 2025-26 approaches its close, it is important for businesses to review their financials, tax positions, and compliance status to ensure a smooth year-end closing. This advisory note outlines the key action points to avoid disallowances, penalties, and notices under the Income-tax Act, 1961.

Table of Contents

🧾 Income Tax – Key Year-End Actions

✔ Expense Booking
• Ensure all expenses related to FY 2025-26 are recorded before 31 March
• Accrue expenses such as:
o Rent
o Professional fees
o Interest
o Audit fees
o Electricity / internet

✔ Check Disallowances
Review critical sections to avoid tax disallowance:
• Section 40A(3): Cash payments above ₹10,000
• Section 43B: PF, ESI, GST, bonus payable
• TDS-related disallowances

✔ TDS Compliance
• Deduct TDS on all applicable payments:
o Salary (Section 192)
o Contractor (194C)
o Professional fees (194J)
o Rent (194I)
• Ensure TDS is deducted and deposited on time
• Reconcile TDS with books

✔ Advance Tax
• Pay remaining advance tax before 31 March
• Avoid interest under sections 234B & 234C

👥 Payroll & HR Compliance

✔ Salary & Bonus
• Book salary for March
• Record bonus / incentives
• Check leave encashment provision

✔ Employee Deductions
• Verify:
o PF / ESI
o TDS calculation
o Investment proofs (80C, 80D, etc.)

🧮 GST Compliance

✔ Reconciliation
• Match:
o Books vs GSTR-1
o Books vs GSTR-3B
o ITC vs GSTR-2B

✔ ITC Review
• Reverse ineligible ITC
• Ensure vendor compliance

📚 Accounting & Financial Review

✔ Books Finalisation
• Complete bank reconciliation
• Verify debtors & creditors
• Review provisions & accruals

✔ Fixed Assets
• Record additions / deletions
• Calculate depreciation

🤝 Vendor & Contract Compliance

✔ Vendor Review
• Collect pending invoices
• Verify vendor GST & PAN
• Ensure TDS compliance

✔ Agreements
• Review ongoing contracts
• Check expiry / renewal terms

💰 Cash & Banking Controls

• Avoid cash transactions beyond prescribed limits
• Ensure proper documentation of all transactions
• Review loans & advances

📂 Documentation & Audit Readiness

Prepare for audit by maintaining:
✔ Invoices & bills
✔ Agreements
✔ Bank statements
✔ TDS records
✔ GST returns
✔ Payroll records

📅 Important Due Dates (March-End Focus)

⚠️ Key Risks if Not Completed

Failure to complete year-end activities may result in:
• Expense disallowances
• Interest & penalties
• Income tax notices
• GST mismatches
• Audit qualifications

🏁 Conclusion

A timely and structured financial year closing ensures compliance, reduces tax risks, and strengthens financial reporting. Businesses should proactively review all tax, accounting, payroll, and regulatory aspects before 31 March to avoid last-minute issues.

For a smooth closure, it is advisable to seek professional assistance for compliance review, tax planning, and audit preparation.

For any assistance with FY closing, compliance review, or tax planning, feel free to connect with us.