As the financial year-end approaches, most of us start rushing to figure out how to minimise taxes while keeping our finances in order. But it can often result in uninformed, last-minute decisions that can affect your finances.
This is because tax planning requires an informed, meticulous approach to identifying the right investment methods and understanding the tax regime.
But effective tax planning doesn’t have to be stressful.
With 2025 around the corner, it’s still not too late to evaluate your options and make the most of the available tax benefits. In this blog, we’ll explore top year-end tax planning strategies to maximise your investment returns.
Why Does Tax Planning Matter?
Tax planning is a key component of financial management. For those looking to maximise their financial gains, tax year-end planning is an efficient method to transform your taxable funds into income-generating sources.
With tax year-end planning in advance, you not only decrease your tax liability but can better align your investments with your long-term financial goals. Additionally, tax planning helps you understand your financial position, ensuring that your income, expenses, and savings are aligned in a way that maximises tax benefits.
Top Year-End Tax Planning Strategies
Want to make the most of your finances? Here are the best methods for your year-end tax planning-
1. Make advance tax payment
As per section 208 of the Income Tax Act, if you are a taxpayer with a tax liability exceeding Rs. 10,000 and no TDS has been withheld, you are required to pay advance tax in four installments throughout the financial year. The final installment must be made by the 15th of March each year.
If you are unable to pay the advance tax by the due date, it can attract penalties and interest at the time of filing your income tax return (ITR).
2. Avail tax benefits under NPS
Section 80 of the Indian Income Tax Act offers a wide range of deductions that can help reduce your taxable income significantly.
These deductions allow you to lower your taxable income by investing in specific financial instruments and pension plans, such as the National Pension System (NPS), which provides a long-term retirement benefit while offering tax incentives.
Investing in NPS not only helps to secure your retirement fund but also provides a tax deduction under Section 80C up to Rs. 1.5 lakhs in a financial year under the old tax regime.
3. Invest in ULIPs
ULIPs are investment-cum-insurance products that provide you with the dual benefit of market-linked returns and life cover. These plans can be a good choice for investors looking to make long-term investments while simultaneously getting tax benefits under Section 80C.
The premiums you pay for a ULIP qualify for a deduction up to Rs. 1.5 lakhs and the amount you receive on maturity is tax-exempt under section 10(10D).
4. Invest in mutual funds
Investing in mutual funds is another popular way to save taxes while potentially achieving higher returns. Mutual funds schemes, such as Equity-Linked Savings Schemes (ELSS), provide tax benefits under Section 80C under the old tax regime. These funds typically have a lock-in period of three years, which makes them an attractive choice for long-term investment.
Further, mutual funds offer diversification and are managed by experienced professionals. Plus, you can choose funds based on your risk appetite and investment goals, making them perfect for your varied financial goals.
5. Claim deductions under section 80D
Health insurance is an essential component of any financial plan, and investing in one can offer you both tax benefits and financial security.
Under Section 80D, you can claim deductions for health insurance premiums paid for yourself, your spouse, or your children. The maximum deduction limit under this section is Rs. 25,000 for individuals below 60 years of age and up to Rs. 50,000 for senior citizens.
6. Get tax deductions on salary for HRA
If you are living in rented accommodation, you can claim deductions under the House Rent Allowance (HRA) component of your salary under section 10(13A). To avail of this benefit, you must have a valid rent agreement and receipts.
The deduction amount is calculated based on the actual rent paid minus 10% of your basic salary, or 50% of the basic salary (for metro cities) or 40% of the basic salary (for non-metro cities).
Claiming HRA can significantly reduce your year-end tax liability, so it’s essential to ensure that you have the necessary documents in place before the end of the financial year. However, this benefit is only available for taxpayers who have chosen the old tax regime.
7. Invest in EPF
EPF is a long-term investment that provides assured returns along with the added advantage of tax-free interest on the accumulated corpus at the time of maturity.
The Employee Provident Fund (EPF) is another great way to save tax while building a retirement fund under the old tax regime. Contributions to the EPF qualify for deductions under Section 80C, with a maximum limit of Rs. 1.5 lakhs.
Year-End Tax Planning Checklist
Here’s a quick year-end tax planning checklist to help you maximise your tax savings-
1. Calculate your tax liability and identify the most tax-efficient investment options.
2. Make advance tax payments to avoid interest or penalty.
3. Invest in eligible tax-saving instruments such as ULIPs, mutual funds, or EPF.
4. Claim deductions under sections 80C and 80D.
5. Review and update your health insurance to claim deductions under Section 80D.
6. Ensure compliance with advance tax requirements before the 15th of March.
In The End
Year-end tax planning is all about making smart decisions based on your financial situation. Keep in mind that timing is crucial. Try to invest before the year ends to maximise your tax-saving benefits.
Additionally, make sure to maintain all relevant documents to support your claims when filing your income tax return.
If you’re planning to start your investment journey and looking for a reliable partner, turn to Tata Capital. Our hassle-free processes and minimal paperwork requirements ensure a seamless investing experience. Plus, our experts are always here to help you identify your financial needs and pick the right investments for maximum returns.
Explore our website or download the app to get started today!
24 December 2024
6 mins read
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