Save Income Tax by 31st March: Best Tax Planning & Investment Options

Choosing the Right Tax Regime Before March 31^st

As the financial year concludes on March 31st, it's crucial to evaluate your tax-saving strategies. The Indian tax system offers two regimes: the Old Tax Regime, which provides various deductions and exemptions, and the New Tax Regime, featuring reduced tax rates but limited deductions¹. Some points to consider are:

• Deductions under Section 80C, 80D, House Rent Allowance (HRA), and Leave Travel Allowance (LTA) are only available under the Old Tax regime¹.
• While the standard deduction for salaried employees and pensioners has been revised to ₹75,000 under the New Tax Regime⁹.
• Also, employees can avail of a deduction for their employer's contribution to the National Pension System (NPS)², up to 14% of their basic salary.
• As per Budget 2025^*, zero tax for employees earning income up to ₹12.75 lakh will be available from the next fiscal year¹.
• The income tax slabs as per the Old Tax Regime are given below¹:
  • Up to Rs 2.5 lakh: No tax
  • Rs 2.5 lakh to Rs 5 lakh: 5%
  • Rs 5 lakh to Rs 10 lakh: 20%
  • More than Rs 10 lakh: 30%
• The income tax slabs as per the New Tax Regime are as follows¹:
  • Up to Rs 3 lakh: No tax
  • Rs 3 lakh to Rs 6 lakh: 5%
  • Rs 6 lakh to Rs 9 lakh: 10%
  • Rs 9 lakh to Rs 12 lakh: 15%
  • Rs 12 lakh to Rs 15 lakh: 20%
  • More than Rs 15 lakh: 30%
• However, from the financial year 2025-26^*, the tax slab under the new tax regime will change to the following¹⁰ –
  • Up to Rs 4 lakh: No tax
  • Rs 4 lakh to Rs 8 lakh: 5%
  • Rs 8 lakh to Rs 12 lakh: 10%
  • Rs 12 lakh to Rs 16 lakh: 15%
  • Rs 16 lakh to Rs 20 lakh: 20%
  • Rs 20 lakhs to Rs 24 lakhs – 25%
  • More than Rs 24 lakh: 30%

Choosing the appropriate regime depends on your financial situation and eligible deductions. Assess your income, investments, and expenses to determine which regime offers greater tax benefits. This informed decision can lead to significant tax savings before the fiscal year ends.

Tax Saving Investment Options

To reduce taxable income and save on taxes, taxpayers in India can consider various investment options. Some are discussed below:

1. Life Insurance:

   You can claim a maximum deduction of up to ₹1.5 lakh annually for premiums paid towards a life insurance policy⁶. This deduction is subject to specific provisions. Moreover, the benefits received from a life insurance policy are also tax-free in your hand, subject to specific terms and conditions ⁶. So, you can buy a life insurance plan to save taxes under Section 80C of the Income Tax Act (in case of old tax regime).

2. Other deductions under Section 80C –

   Besides life insurance, there are different schemes or investments for which 80C deductions can be claimed. Some of these schemes include the Public Provident Fund (PPF), Employees^' Provident Fund (EPF), National Savings Certificate (NSC), Equity-Linked Savings Scheme (ELSS), etc³.

3. Section 80D:

   Permits deductions for health insurance premiums paid for self, family, and dependent parents. The deduction limits are ₹25,000 for self and family and an additional ₹25,000 for parents below 60 years (₹50,000 if parents are above 60)¹¹.

4. Section 80E:

   Provides deductions on interest paid on education loans for higher studies. This benefit is available for eight years or until the interest is fully repaid, whichever is earlier⁷.

5. National Pension System (NPS):

   Investing in NPS can provide additional deductions up to ₹50,000 under Section 80CCD(1B), over and above the ₹1.5 lakh limit of Section 80C¹².

6. Home Loan Repayments:

   The principal component of home loan repayments qualifies for deduction under Section 80C, while the interest component is deductible under Section 24 up to ₹2 lakh for self-occupied properties. For let-out properties, there's no upper limit on the interest deduction¹³. Additionally, Section 80EE allows first-time homebuyers an extra deduction of ₹50,000 on interest¹⁴, and Section 80EEA offers an additional ₹1.5 lakh deduction for affordable housing purchases with loans taken from 1^st April 2019 and March 31, 2022⁴.

7. House Rent Allowance (HRA) Exemption:

   ¹⁵ All salaried employees living in rented houses can claim HRA exemption by submitting rent receipts and, if applicable, the landlord's PAN details¹⁵. 

8. Leave Travel Allowance (LTA) Claims:

   LTA can be claimed for travel expenses incurred during eligible leaves. Ensure to retain travel tickets and related documents as proof¹⁶.

9. Capital Gains Tax Planning:

   Review your investment portfolio to identify opportunities for tax-loss harvesting, offsetting capital gains with losses to reduce taxable income¹⁷.

10. Donations to Charitable Institutions:

    ⁵

    Contributions to specified relief funds and charitable institutions qualify for deductions under Section 80G. Depending on the organisation, you can claim a deduction of 50% or 100% of the donated amount. Cash donations above ₹2,000 will not be eligible under Section 80 G.

Smart Tax Planning: Essential Do’s and Don’ts Before March 31

Efficient tax planning before the March 31 deadline involves mindful actions. Here are some key do's and don'ts:

Do's:

   

• Plan Early:

  Begin your tax-saving investments well before the financial year ends to avoid hasty decisions.

• Assess Existing Investments:

  Review current contributions like EPF and insurance premiums to understand how much of the Section 80C limit is already utilised. Maximum ₹1.5 lakh deduction is only allowed¹⁸. So plan accordingly.

• Align Investments with Goals:

  Select tax-saving instruments that match your financial objectives and risk appetite.

• Maintain Documentation:

  Keep organised records of all investments and expenses eligible for deductions to ensure a smooth filing process.

   

Don'ts:

• Avoid Last-Minute Investments:

  Rushing investments can lead to choices that don't align with your financial goals.

• Don't Overlook Existing Deductions:

  Neglecting current eligible deductions may result in unnecessary additional investments.

• Refrain from Unnecessary Insurance Purchases:

  Buying insurance solely for tax benefits without assessing actual coverage needs can be counterproductive.

Conclusion

Planning your taxes before March 31st helps you maximise savings and avoid last-minute stress. By choosing the right tax regime, investing in eligible deductions, and following smart tax-saving strategies, you can reduce your tax burden effectively. Stay informed, review your finances, and take timely action to optimise your tax benefits.

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