March 31 tax planning deadline: A last-minute guide to reducing your income tax outgo

According to the report, the department has identified an estimated Rs 4,200 crore in evaded taxes from profits booked between 2021 and 2024.

With March 31, the last date to make tax-saving investments for the financial year 2024-25, just 12 days away, clock is ticking for individuals who have opted for the old tax regime.

The finance ministry data says 72 percent of taxpayers moved to the new tax regime in FY24 and the number is expected to go up this fiscal after the changes announced in the previous year’s Budget. The concessions in Budget 2025 will take the numbers further up.

A section of taxpayers, however, continues to find the old tax regime beneficial.

Salaried taxpayers should start their tax planning at the beginning of the financial year but if for some reason you haven't done so, Moneycontrol has a ready reckoner to optimise the tax benefits while avoiding some common pitfalls.

Know your 80C  

Some of the most popular tax-saving avenues under section 80C, which offers deductions of up to Rs 1.5 lakh, include equity-linked saving schemes (ELSS), Sukanya Samriddhi Account (SSA), life insurance policies, Public Provident Fund (PPF), employees' provident fund (EPF) contribution and five-year tax-saver bank fixed deposits.

Choose an instrument that you fits your long-term financial plan rather than one just to complete the tax exercise. For instance, do not buy an endowment or unit-linked (Ulip) life insurance policies if you are uncertain about your ability to pay the premiums year after year.

Before you select an instrument, ascertain whether you need to make the investment at all, as these options come with lock-in periods. Unplanned investments made in a rush to save taxes can result in money being locked up until maturity.

Scrutinise your finances and investments made during the year closely — you may find that the Section 80C limit is already taken care of. This is because the employees provident fund (EPF) contribution, which your employer deducts from your salary every month, is also eligible for tax deduction under the section.

Similarly, if you have taken a home loan, especially in a metro city, it is likely that the principal amount that you have paid during the year will be enough.

Children’s tuition fees

This only requires you to preserve copies of your children’s tuition fees paid during the year. Under section 80C, you can avail deductions for school/college tuition fees paid for up to two children, subject to a maximum of Rs 1.5 lakh. Both spouses can avail this deduction separately to optimise the tax break.

If the tuition fee paid is Rs 2.5 lakh, for instance, the wife can claim deductions of up to Rs 1.5 lakh and the husband can use the remaining Rs 1 lakh. Nursery tuition fee too is eligible for deduction. However, donations, school bus fees, charges for extra-curricular, etc do not qualify.

National Pension System (NPS)

Private sector employees who contribute up to 10 percent of their basic salary plus dearness allowance, if any, towards the National Pension System (NPS) are eligible for deductions under Section 80CCD(1) of the Income Tax Act, 1961, under the old regime. This is subject to the overall 80 C limit of Rs 1.5 lakh. Moreover, they can contribute an additional Rs 50,000 to NPS to claim a tax break under Section 80CCD(1B).

You can also sign up for corporate NPS, provided your employer offers the facility, to avail deduction under Section 80CCD(2). Under the old tax regime, the employer’s contribution of up to 10 percent of your basic salary is exempt from tax. Under the new regime, this is much higher at 14 percent. However, employers tend to open the window to avail of this facility only at the beginning of the financial year.

Also read: Top five changes in income tax rules in 2024

Medical expenses for senior citizens

Section 80D allows tax deduction on health insurance premium paid during the financial year. You can buy a health insurance policy if you need one but ensure that you spend enough time doing your homework to select the right company and coverage.

You need not always buy a health cover to claim this deduction, though. Senior citizens who do not have health insurance can avail of deductions of up to Rs 50,000 on medical expenses incurred during the financial year. If their children fund these expenses, they, too, will qualify for the tax benefits.

Choose the tax regime carefully

While making tax-saving investments, keep 2025-26 and beyond in mind. If your calculation shows that the new regime will be beneficial in the next fiscal, think twice before investing in tax-savers with long lock-in periods that will not take you closer to your financial goals. For instance, avoid investment-cum-insurance policies with recurring premium payment commitments if you do not need the life cover they offer. Even NPS and PPF require investors to make contributions regularly to keep the accounts in force.