Despite knowing well in advance about their tax obligations, many employees face financial strain in February and March due to last-minute tax deductions. The lack of early planning often leads to cash flow issues, financial stress, and rushed investments that may not align with long-term financial goals.

To avoid this, Gagan Sharma, Chief Human Resource Officer at Namdev Finvest Pvt. Ltd., shares a proactive four-step approach that ensures employees stay prepared throughout the financial year and avoid last-minute tax burdens.

Understand Your Tax Liabilities Early

Employees need to be aware of the Tax Slabs for the Financial year. The first step in effective tax planning is awareness. Employees must familiarise themselves with:

• Tax slabs applicable for the financial year
• Total income sources (salary, incentives, bonuses, investments)
• Deductions and exemptions available to reduce taxable income

“By understanding their potential tax liabilities early on, employees can take informed steps to maximize savings while maintaining financial stability,” says Gagan.

Explore and Utilise Tax-Saving Options

To effectively balance the tax-saving investments with the cash flow, Gagan advises employees to work on prioritising saving and investments before indulgence, luxury, and fun.  “Knowing the available tax-saving options under different sections allows employees to align their financial planning with their personal needs,” says Gagan.

He suggests starting small, being consistent from the beginning of the financial year, and gradually increasing tax-saving contributions over time.

Employees can benefit from:

• 80C Investments: PPF, voluntary PF, ELSS, NPS, term insurance, tax-saving FDs
• Health & Life Insurance: Medical insurance (80D) and term insurance coverage
• Education & Retirement Savings: Children's tuition fees, NPS contributions

Housing & Rent Benefits: HRA for rented accommodation, home loan deductions under 80C (principal) and 24(b) (interest payments)

Distribute Tax-Saving Investments Throughout the Year

A common mistake employees make is waiting until year-end to invest in tax-saving instruments, leading to financial strain and cash flow issues. Instead, Gagan advises distributing tax-saving expenses over 12 months. He suggests

• Avoid sudden financial pressure in February-March
• Maintain monthly liquidity while still achieving tax benefits
• Make more well-planned investment choices instead of last-minute decisions

"Planning small but consistently throughout the year ensures employees meet tax-saving goals without disrupting their finances," he adds.

Balance Tax-Saving with Monthly Cash Flow

To avoid last-minute financial stress, Gagan recommends prioritising essential financial needs first before discretionary spending on luxuries.

Key priorities for effective financial planning:

• Safety & security first: Insurance, emergency funds, and retirement planning
• Tax-efficient wealth-building: ELSS, PPF, NPS for long-term gains
• Strategic asset purchases: Home loans, HRA benefits, and LTA claims

“Know which expense items can save tax while also growing wealth,” Gagan suggests. "This approach ensures a balanced financial life with reduced tax burdens.”

“One can also use HRA benefits if they make use of a rented accommodation. Employees can also make use of the opportunity of saving tax while building assets, such as buying a house using home loans and saving tax against the principal and interest payments on the home loan. One can also check with the Employer to avail LTA benefits.”

According to him, most benefits can be planned if the employee makes himself more aware of the various heads under which expenses, savings, and investments can get them to save taxes before all.