As the financial year comes to an end on March 31, many people start looking for ways to save on taxes and make use of available deductions. The financial year runs from April to March, and it’s common to feel a bit rushed when sorting out tax matters before the deadline. Tax-related issues can be confusing, especially when you’re not sure how to reduce your tax burden.
Proper tax planning not only helps you save on taxes but also ensures you follow the rules. Whether you are a salaried person or a business owner, reviewing your tax-saving investments, deductions, and declarations can help reduce the amount you pay. If you’re wondering how to save on taxes, you’re not alone.
If you’re making last-minute investment decisions to optimize tax savings, consider diversifying your portfolio with mutual funds. While ELSS funds provide tax benefits, other mutual funds can also be great for long-term wealth creation. Check out our expert picks for the Best Mutual Funds for Lumpsum Investment if you’re looking to make a well-informed decision before the financial year ends
Overview of Contents
Essential Tax Planning Tips Before Financial Year End
As the financial year-end approaches, it’s the perfect time to take a closer look at your finances and make smart tax-saving decisions. Proper planning can help you reduce your tax liability, maximize deductions, and ensure you’re compliant with the latest tax regulations.
In this article, we’ll share useful tax planning tips before the financial year-end to help you make the right choices and save more before March 31.
1. Maximize Tax-Saving Investments
A great way to reduce your taxable income is by investing in tax-saving instruments. Under Section 80C of the Income Tax Act, you can invest up to ₹1.5 lakh in options like Public Provident Fund (PPF), National Savings Certificates (NSC), Tax-Saving Fixed Deposits, and ELSS (Equity Linked Savings Schemes).
These investments not only help you save on taxes but also offer returns, making them a win-win. ELSS, in particular, has the added benefit of potentially higher returns due to its equity exposure, although it comes with a higher risk.
In addition to Section 80C, you can also explore deductions under Section 80D for health insurance premiums, Section 80G for donations, and Section 80E for interest on education loans.
By reviewing your current tax-saving investments and making adjustments or additional contributions before March 31, you can ensure you’re maximizing the full potential of these deductions and reducing your tax burden. This proactive step not only helps with immediate tax savings but also contributes to your long-term financial goals.
By carefully considering these options under the Income Tax Act, you can make tax planning an effective tool to build wealth and reduce your tax liability at the same time.
Example:
Let’s say you’re a salaried individual with a total annual income of ₹8,00,000. To reduce your taxable income, you decide to invest ₹1.5 lakh in tax-saving instruments under Section 80C (like PPF, NSC, or ELSS). By doing this, your taxable income drops from ₹8,00,000 to ₹6,50,000, reducing your tax liability.
2. Review Your Deductions and Exemptions
Before the financial year ends on March 31, it’s important to review all the deductions and exemptions available to you under the Income Tax Act. Many taxpayers miss out on claiming benefits simply because they don’t check their eligibility or fail to submit the required proofs on time.
- Section 80D – Get a deduction on health insurance premiums (₹25,000 for self & family, ₹50,000 for senior citizens).
- Section 80E – If you have an education loan, the interest paid on it is fully deductible.
- Section 80G – Donations to eligible charities can give you tax benefits.
- HRA (House Rent Allowance) – If you live in a rented house, you can claim HRA exemption under Section 10(13A).
3. Plan for Capital Gains Tax
As the financial year-end approaches, it’s important to review your capital gains tax liability and take steps to minimize it. Capital gains tax is levied on the profit earned from selling assets like stocks, mutual funds, real estate, and gold. Depending on how long you hold these assets, your gains will be categorized as short-term or long-term, each with different tax rates.
✅ Reinvest Gains in Residential Property (Section 54) – If you sell real estate, reinvest the capital gains in another residential property within 2 years (or construct within 3 years) to claim an exemption.
✅ Invest in Capital Gains Bonds (Section 54EC) – You can invest up to ₹50 lakh in NHAI or REC bonds within 6 months of selling property to avoid tax on long-term capital gains.
✅ Utilize the ₹1 Lakh Exemption for Equity Gains – If you have long-term gains from stocks or mutual funds, sell them strategically so that your total LTCG does not exceed ₹1 lakh, keeping it tax-free.
✅ Set Off Capital Gains with Losses – If you have short-term or long-term losses from previous years, you can adjust them against your gains to reduce your tax burden. Short-term losses can offset both STCG and LTCG, but long-term losses can only be adjusted against LTCG.
✅ Delay Selling Assets If Possible – If you are close to reaching the 3-year holding period for real estate or debt funds, consider waiting to convert short-term gains into long-term gains, as the tax rate is much lower.
Short-Term Capital Gains (STCG)
- Equity Shares & Equity Mutual Funds (sold within 12 months): Taxed at 15% under Section 111A.
- Other Assets (Real Estate, Gold, Debt Mutual Funds, etc.) (sold within 3 years): Taxed as per your income tax slab.
Long-Term Capital Gains (LTCG)
- Equity Shares & Equity Mutual Funds (held for more than 12 months): Gains above ₹1 lakh are taxed at 10% (without indexation) under Section 112A.
- Real Estate, Gold, Debt Mutual Funds, etc. (held for more than 3 years): Taxed at 20% with indexation benefits, which reduces taxable gains
4. Contribute to Retirement Funds (NPS/EPF)
Contributing to retirement funds like NPS and EPF before March 31 helps maximize tax savings. Under Section 80CCD(1), NPS investments qualify for deductions up to ₹1.5 lakh, with an additional ₹50,000 deduction under Section 80CCD(1B). Employer contributions to NPS under Section 80CCD(2) are also tax-free up to 10% of salary. Similarly, EPF contributions up to ₹1.5 lakh fall under Section 80C, and interest on EPF remains tax-free up to ₹2.5 lakh per year. Making these contributions before the financial year-end helps reduce taxable income, utilize available deductions, and grow retirement savings with compounding benefits.
For example, if Amit, a private sector employee, has utilized only ₹1.2 lakh under Section 80C through life insurance and PPF contributions, he can still invest ₹30,000 in EPF or NPS before March 31 to fully utilize the ₹1.5 lakh deduction. Additionally, if he contributes ₹50,000 more to NPS, he can claim an extra deduction under Section 80CCD(1B), further reducing his taxable income. This means Amit can lower his tax liability while securing his retirement savings.
5. Claim HRA (House Rent Allowance) Benefits
If you are a salaried employee living in rented accommodation, you can claim HRA (House Rent Allowance) exemption to reduce your taxable income. HRA is a component of your salary, and its exemption is calculated under Section 10(13A) of the Income Tax Act based on your salary, rent paid, and city of residence (metro or non-metro).
To claim HRA benefits before March 31, ensure you have paid rent through a valid mode (bank transfer, cheque, UPI, etc.) and collected rent receipts from your landlord. If the annual rent exceeds ₹1 lakh, you must also provide the landlord’s PAN. Those who don’t receive HRA but still pay rent can claim a deduction of up to ₹60,000 per year under Section 80GG. Proper documentation and timely submission to your employer can help maximize tax savings before the financial year ends.
Example:
For example, Rohit, a software engineer in Hyderabad, earns a basic salary of ₹50,000 per month and receives HRA of ₹20,000 per month. He pays ₹18,000 rent per month for his apartment.
To calculate his HRA exemption, the least of the following is considered:
- Actual HRA received → ₹20,000 × 12 = ₹2,40,000
- Rent paid minus 10% of basic salary → (₹18,000 × 12) – (10% of ₹50,000 × 12) = ₹2,16,000 – ₹60,000 = ₹1,56,000
- 50% of basic salary (for metro cities) → 50% of (₹50,000 × 12) = ₹3,00,000
Since the lowest amount is ₹1,56,000, Rohit can claim this as HRA exemption, reducing his taxable income. By submitting rent receipts and landlord details before March 31, he ensures maximum tax savings for the financial year.
6. Claim Health Insurance Benefits Under Section 80D
Investing in health insurance before the financial year-end (March 31) can help you save taxes under Section 80D of the Income Tax Act. You can claim deductions on the premium paid for yourself, your family, and your parents. The deduction limits are:
- ₹25,000 for self, spouse, and children (₹50,000 if the insured is a senior citizen).
- ₹25,000 for parents (₹50,000 if parents are senior citizens).
- A maximum deduction of ₹1,00,000 is available if both taxpayer and parents are senior citizens.
To maximize benefits, ensure the premium is paid before March 31 through a digital mode (bank transfer, card, UPI, etc.), as cash payments (except for preventive health check-ups) are not eligible for tax benefits. If you haven’t utilized your Section 80D limit, consider buying top-up or family floater health insurance to enhance coverage while reducing taxable income.
Example:
For example, Neha, a 35-year-old marketing professional, pays an annual health insurance premium of ₹20,000 for herself, her husband, and her child. Additionally, she pays ₹45,000 for her senior citizen parents’ health insurance.
Here’s how she can claim tax benefits under Section 80D:
- ₹20,000 deduction for her own family (within the ₹25,000 limit).
- ₹45,000 deduction for her senior citizen parents (up to ₹50,000 allowed).
In total, Neha can claim ₹65,000 as a tax deduction, significantly reducing her taxable income. To ensure she gets the benefit for this financial year, she must make the payment before March 31 using a digital mode.
7. Check for Any Pending Tax Declarations Before March 31
Before the financial year-end (March 31), it’s essential to review and submit any pending tax declarations to your employer or tax authorities. This ensures that your tax-saving investments, exemptions, and deductions are properly accounted for, avoiding any last-minute issues.
Common pending tax declarations to check include:
- Investment proofs like PPF, ELSS, NPS, or life insurance premiums.
- HRA declarations if you’re claiming rent deductions.
- Interest on housing loan for homebuyers.
- Medical insurance premiums and any other eligible deductions under Section 80C, 80D, etc.
By declaring these investments and deductions in advance, you ensure that your TDS (Tax Deducted at Source) is calculated accurately, reducing your chances of a tax burden at the end of the year. If you miss the deadline for declarations, you may end up paying more tax than necessary or even face penalties for incorrect filings.
8. Avoid Last-Minute Rush and Plan Early
As the financial year-end (March 31) approaches, many individuals rush to make tax-saving investments and declarations. However, last-minute planning often leads to missed opportunities, confusion, and a higher tax burden. To avoid this, it’s crucial to plan early and take the necessary steps well in advance.
Start by reviewing your taxable income, available deductions, and exemptions. Set clear financial goals and identify tax-saving instruments such as PPF, NPS, health insurance, and tax-saver FDs. Also, check if you have any pending declarations related to HRA, home loans, or investments that need to be submitted.
By planning and acting before the rush, you ensure that you maximize your tax-saving potential and avoid penalties or incorrect filings.
9. Check for any Pending Tax Declarations
Before the financial year ends on March 31, it’s crucial to check for any pending tax declarations to avoid unnecessary tax deductions. Many employees forget to submit investment proofs for Section 80C deductions (like PPF, ELSS, or life insurance), HRA exemptions, health insurance premiums (Section 80D), or home loan interest benefits (Section 24b). If these are not declared on time, employers may deduct higher TDS, leading to a lower in-hand salary and the hassle of claiming a refund later. To ensure maximum tax savings and avoid last-minute stress, review and submit all required declarations well before the deadline.
10. Reassess Your Taxable Income
Before the financial year ends on March 31, it’s important to reassess your taxable income to identify potential tax-saving opportunities. Check your total earnings, including salary, business income, rental income, and capital gains, and verify if all applicable deductions and exemptions have been accounted for. Reviewing your taxable income helps in making last-minute investments under Section 80C (PPF, ELSS, Tax-Saver FD) or claiming deductions for health insurance (Section 80D), home loan interest (Section 24b), and HRA. This proactive approach ensures you don’t pay excess tax and helps in better financial planning before the financial year closes.