As the financial year approaches its close, salaried individuals often scramble to make last-minute investments and declarations to reduce their tax burden. Effective tax planning, however, isn’t just a March activity—it’s a year-round effort. Understanding the right deductions and exemptions under the Income-tax Act, 1961 can help you optimize savings and ensure compliance without stress.
Here are practical and impactful year-end tax planning tips for salaried individuals, along with the relevant tax provisions you should know.
1. Review Your Salary Structure and Optimize Allowances
Your salary package includes multiple components that may be tax-exempt or partially taxable. Reviewing your salary structure before the year ends gives you room for tax-efficient adjustments.
Key Components:
- House Rent Allowance (HRA) – Section 10(13A)
If you live in rented accommodation, you can claim an HRA exemption based on your salary, rent paid, and city of residence. - Leave Travel Allowance (LTA) – Section 10(5)
Exemption can be claimed for domestic travel twice in a block of four years. - Conveyance, Food Coupons, and Telecom Reimbursements – Exempt under relevant rules if routed through employer policy.
2. Maximize Deductions Under Section 80C (Limit: ₹1,50,000)
Section 80C allows a deduction of up to ₹1.5 lakh for specified investments and payments. It remains the cornerstone of tax planning for salaried individuals.
Eligible Investments and Expenses Include:
- Employee Provident Fund (EPF)
- Public Provident Fund (PPF)
- Equity Linked Savings Scheme (ELSS)
- Life insurance premiums
- National Savings Certificates (NSC)
- Tuition fees paid for children
- Principal repayment on housing loans
For individuals nearing the financial year-end, ELSS funds and additional contributions to EPF/PPF serve as efficient, compliant options to complete the 80C limit.
3. Leverage Additional Tax Savings Through NPS – Section 80CCD(1B)
The National Pension System (NPS) offers an additional deduction of ₹50,000 under Section 80CCD(1B), over and above the 80C limit. This makes NPS particularly attractive for individuals seeking retirement security and additional tax benefits.
4. Utilize Health Insurance and Medical Deduction – Section 80D
Health insurance provides financial protection and tax benefits under Section 80D.
Permissible Deductions:
- ₹25,000 for self, spouse, and dependent children
- Additional ₹25,000 for parents (₹50,000 if parents are senior citizens)
Preventive health check-ups can be included within the above limits, subject to a cap of ₹5,000.
5. Home Loan-Related Deductions – Section 24(b)
Taxpayers servicing home loans may claim deductions on both principal and interest components.
Interest Deduction – Section 24(b): Up to ₹2,00,000 for self-occupied property.
6. Standard Deduction for Salaried Individuals – Section 16(ia)
A standard deduction of ₹50,000 is available to all salaried taxpayers. This deduction is automatically considered during TDS computation, but employees should verify its inclusion in Form 16.
7. Savings Account Interest Deduction – Section 80TTA / 80TTB
Interest earned on savings bank accounts may qualify for deductions:
- Section 80TTA: Up to ₹10,000 for individuals below 60 years.
- Section 80TTB: Up to ₹50,000 for senior citizens (includes interest from savings accounts and fixed deposits).
Though modest, these deductions assist in optimizing overall tax liability.
8. Choosing Between the Old and New Tax Regime – Section 115BAC
The new tax regime, introduced under Section 115BAC, is now the default. Salaried individuals, however, retain the annual option to choose either regime at the time of filing their income tax return.
- Old Regime: Suitable for taxpayers who maximize deductions such as 80C, 80D, 24(b), HRA, and LTA.
- New Regime: Offers reduced slab rates with limited deductions.
Before the financial year ends, employees should compare tax liability under both regimes to ensure appropriate TDS adjustments.
9. Claiming Deductions for Charitable Donations – Section 80G
Contributions to approved charitable institutions can be claimed as deductions under Section 80G.
Deduction Categories:
- 100% deduction without qualifying limit (e.g., PMNRF)
- 50% deduction with or without qualifying limits, depending on the institution
Taxpayers must ensure all donations are made through traceable payment methods and retain valid receipts.
10. Maintain Complete Documentation
Accurate and timely submission of proofs is essential for smooth year-end compliance. Employees should maintain:
- Rent receipts and rental agreements
- Investment and insurance premium receipts
- ELSS statements and PPF passbook entries
- Health insurance documents
- Donation receipts under Section 80G
- Form 10BA (where applicable)
Maintaining comprehensive records ensures consistency between employer TDS, Form 26AS, AIS, and ITR filings.
Conclusion
Effective year-end tax planning requires a balanced approach combining statutory deductions, informed investment decisions, and structured financial management. By leveraging key provisions of the Income-tax Act—such as Sections 80C, 80D, 80CCD(1B), 24(b), 80G, and 115BAC—salaried individuals can substantially optimize their tax liability while strengthening their financial well-being.
