Maximize Your Tax Savings Tips & Strategies for Tax Planning

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Paying taxes is a civic duty that help the government in fostering a country's growth goals. You must submit your IT returns as an Indian citizen regardless of your salary and you must pay taxes if your income exceeds a threshold set by the government.

Introduction to Tax Planning

However, did you know that with wise tax planning, you can significantly lower your tax burden and avail benefits from tax exemptions on a wide range of investments? This can be done mainly through tax planning.

The act of creating a financial plan that allows you to substantially lower your tax payment is known as tax planning. It entails making the best use possible of the tax exemption rates and rebates provided by the Indian government under different sections of the Income Tax Act, 1961.

Tax planning involves analysing a financial situation or strategy that helps you to ensure that all factors work together to enable you to pay the least amount of taxes. Various factors like timing of revenue, size, timing of purchases and budgeting for expenses are all factors involved in tax planning.

How Tax Planning helps in saving money?

Tax planning helps you in the long run as there are many tax planning tools available for you that enable tax deduction claims and are available to all taxpayer classes, including salaried individuals, business owners, professionals, etc. Section 10 of the Indian Tax Act of 1961 specifies the incomes with no tax obligation and Section 80C specifies the tax deductions.

Most of us tend to not rush, to plan our money well in advance and taxes at the beginning of a fiscal year. This way of thinking lasts almost all the way up until the end of the fiscal year, as a result of which we try to take decisions in haste.

Let us understand through this blog with regard to how advanced tax planning can help in saving money. We will discuss some strategies and steps that help in efficient tax planning.

Strategies that help in Tax Planning

  1. Maximum utilisation of Section 80C

Section 80C is one of the most important aspects when it comes to tax planning. When the exemptions under this section are properly understood and planned, tax planning becomes a very simple affair.

The government encourages citizens to invest in various tax-saving investments listed under section 80C of the Income Tax Act so that individuals can reduce their tax burden. This will allow you to stop worrying about spending too much money on paying taxes and ensure that you have some type of investment. Some of the widely used tax-saving instruments under Section 80C include Public Provident Fund, Premium paid for Life Insurance policy, National Savings Certificate and home loan’s principal amount among others.

  1. ELSS as a tax-planning weapon

Diversified mutual funds make up the Equity-Linked Savings Plans (ELSS). One may receive a tax advantage on their income under Section 80C of up to Rs 1.5 lakh annually while investing in ELSS. If you want a regular income, you can get your returns either through dividends or through a growth option, i.e., if one wants a long-term savings scheme.

 The majority of the funds in the ELSS equity-oriented plan are allocated to stocks.

However, because ELSS's returns are dependent on market performance, it is highly recommended that you diversify your assets across a number of them in order to reduce your risks.

  1. Investing in NPS

The National Pension System (NPS) is a retirement compensation programme that is governed and administered by The Pension Regulatory Fund Authority of India. Your money will be invested mainly in equity and debt instruments if you subscribe to the NPS and the investment's value at maturity will rely on the performance of its asset classes.

Currently, the equity exposure is restricted to 50% for government workers and is capped in the range of 50% to 75%. You have the option of setting the amount of money invested in each asset class yourself or using an asset allocation algorithm based on age. When you turn 60, you can only take out 60% of the maturity sum; the other 40% is used to buy an annuity that helps you in receiving a pension later.

Individuals who choose to invest in NPS are allowed to make premature withdrawals of up to 25% after three years.

  1. Investment in ULIPs can go a long way

In a single plan, ULIPs are products that give you access to both a life insurance policy and an investment chance through a mutual fund. Since life insurers are the ones who provide ULIPs, the payments you make to them when you purchase a ULIPs plan are referred to as "premiums”.

Your premium is divided into an investment component and a mutual fund component, depending on whether you need stock, debt, hybrid or another type of fund. Your investments are looked after by fund administrators. Additionally, you are permitted to switch between various fund types to create the ideal ULIP strategy for you.

A five-year lock-in term is included with a ULIP. Also, it is suggested that ULIPs should be kept for at least 15 years because it combines a life insurance policy and a mutual fund, both of which are long-term investments.

Steps to maximise tax savings

  1. Assess your taxable income in advance

When you start planning your taxes, the first and the most important step is to compute the Gross Total Income as it will help you in understanding the exact amount of the total income earned by you during a financial year.

The next step is to deduct all the expenses like premium paid for medical insurance, interest paid on loan for higher education, donations, rent paid for residential property etc. This helps you in deriving your taxable income, i.e. the income on which you are bound to pay tax.

It is very important that you derive these figures at the start of the financial year so that tax planning becomes an easy journey at a later stage. It also helps you in saving money because you decide your investments prudently and take maximum advantage of all investment options at your disposal.

  1. Plan your investments carefully

The next step is to choose your investments in a prudent manner so that you do not end up paying more taxes. Sections 80C to 80U of the Income Tax Act, 1961 provide qualified taxpayers with a variety of deductions. The Income Tax Act of 1961 includes many choices like Provident Public Fund (PPF), Equity Linked Saving Schemes (ELSS) in mutual funds and National Savings Certificates (NSC) among others.

Tax benefits are available through life insurance, health insurance premiums and mortgage payments. Your financial advisor can be of great help in this aspect as they are experienced in planning the investment portfolio for individuals of all tax brackets and ensure that their clients save taxes to the maximum extent possible.

  1. Assure that your tax-related documents are ready

 The next step is to gather all the tax-related documents like salary slips, Form - 16, Form16A/ Form-16B/ Form- 16C, Form 26AS, Interest Income docs, and Other Interest Certificates, Home Loan Statements, Details of Investment in Shares, Proofs of deductions and investments that can be claimed under section 80C, 80D, 80E, 80TTA, etc and others.

 All these documents must be kept ready well in advance so that there is no last-minute rush in tax filing.

  1. File ITR in advance

Lastly, it is recommended that Income Tax Return (ITR) is filed in advance because it helps you gain a hassle-free experience and since you have planned everything in advance, it becomes a simple job.


It is important to start your tax planning exercise early. When the deadline for filing tax returns is approaching, most individuals file their taxes in March or April. You will be stuck with your present tax liability if you wait until after December 31 or the year's end to start making choices that can lower your tax amount.

Therefore, early tax planning is strongly advised, to allow you more time to accurately estimate your revenue and investment gains or losses. The more time you have to take action, the earlier you can obtain this knowledge.

Connect with our seasoned professionals at mastertrust who help you to understand various aspects of taxation and enable you to do tax planning that reduces your tax liability.