Start with AIS and Form 26AS Reconciliation
Before anything else, your first step should be to download and meticulously review your Annual Information Statement (AIS) and Form 26AS from the income tax portal. The AIS provides a comprehensive summary of all financial transactions reported to the tax department
by third parties like banks, employers, and mutual funds. Form 26AS is your tax passbook, detailing the Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) against your PAN. Reconciling these documents with your own records is crucial to prevent notices due to mismatches and ensures you claim all the tax credits you are entitled to. If you find any discrepancies, such as incorrect income reported in AIS, use the online feedback mechanism to flag it.
Choose the Right Tax Regime
One of the most significant decisions is choosing between the old and new tax regimes. The new regime is the default, offering lower slab rates but forgoing most deductions. The old regime allows you to claim a host of deductions like those under Section 80C, 80D, and HRA. Don't assume one is better than the other. Your choice depends entirely on your financial profile. If you have significant investments in instruments like PPF, ELSS, pay high rent, or have a home loan, the old regime might be more beneficial. Use an online tax calculator to compute your liability under both scenarios before making a final decision. This single step can result in substantial tax savings.
Ensure You've Claimed Every Eligible Deduction
This is the core of tax optimisation just before filing. Go through your financial transactions from the last year and create a checklist. While you cannot make new investments for the past financial year (the deadline was March 31), you can ensure you claim everything you're entitled to. This includes Section 80C (up to ₹1.5 lakh for PPF, EPF, life insurance, tuition fees, home loan principal), Section 80D (health insurance premiums), Section 80G (donations), and Section 80E (interest on education loans). Many people forget smaller but valuable deductions like the one for interest earned on savings bank accounts under Section 80TTA.
Don't Overlook House Rent Allowance (HRA)
For salaried individuals living on rent, the House Rent Allowance (HRA) exemption is a powerful tax-saving tool. Even if you didn't submit rent receipts to your employer, you can still calculate and claim the HRA exemption directly while filing your return. The amount exempt is the minimum of three figures: actual HRA received, rent paid minus 10% of your basic salary, or 50% (for metro cities) / 40% (for non-metros) of your basic salary. Keep your rental agreement and rent receipts handy as proof. If the annual rent exceeds ₹1 lakh, you will need to provide the landlord's PAN.
Maximise Home Loan Benefits
If you are servicing a home loan, you can claim deductions for both the principal and interest components. The principal repayment qualifies for a deduction under Section 80C up to the ₹1.5 lakh limit. The interest paid on the loan is deductible under Section 24(b) up to ₹2 lakh for a self-occupied property. It's even possible to claim both HRA and home loan deductions simultaneously if you own a house in one city but live in a rented property in another for work.
Claim All Health-Related Expenses (Section 80D)
Deductions for health are not limited to just insurance premiums. Under Section 80D, you can claim up to ₹25,000 for premiums paid for yourself, your spouse, and dependent children. An additional deduction is available for premiums paid for parents—up to ₹25,000 if they are below 60 and up to ₹50,000 if they are senior citizens. Within these overall limits, you can also claim a deduction of up to ₹5,000 for preventive health check-ups. For senior citizens who do not have health insurance, medical expenses up to ₹50,000 can be claimed.
Report All Income Sources Correctly
Optimising tax is not just about claiming deductions; it's also about accurate reporting to avoid penalties. Ensure you report income from all sources, including interest from savings accounts and fixed deposits, capital gains from shares or mutual funds, and any rental income. Exempt income, like that from a PPF account or agricultural income, must also be reported in the designated schedule of the ITR form. Accurate reporting that matches your AIS is the best way to ensure a smooth and quick processing of your return.
