Align tax saving with your financial goals, horizons, and liquidity needs

Begin making these investments now, based on informed choices, instead of waiting till the last moment when mistakes are more likely

With barely two-and-a-half months left before the financial year ends, the window for effective tax planning is closing fast. For investors who have opted for the old tax regime, this period often triggers a rush to complete tax-saving investments. But experts warn that purely deduction-driven, last-minute decisions can have lasting financial consequences. Beyond simply reducing tax outgo, the challenge lies in choosing the right mix of instruments that balance tax efficiency with liquidity needs, risk appetite and long-term goals.

Before you invest to save tax

The first step is to clearly determine whether the old tax regime is truly beneficial. Without that clarity, deductions are meaningless.

 

“Too often, taxpayers lock themselves into unsuitable products just to cut taxes. Sensible tax planning should strengthen financial discipline and long-term financial stability, not undermine it,” says Vishwas Panjiar, founder, SVAS Business Advisors.

 

Taxpayers should also make sure they don't lock up too much money in tax-saving products with low liquidity. “Tax saving should be viewed as a balance between reducing tax and maintaining cash flow. While tax saving matters, it should never come at the cost of strained cash flows. Both must be evaluated together before investing,” says Santosh Joseph, founder and chief executive officer, Germinate Investor Services.

EPF and VPF: Benefits, risks and tax treatment

Employees’ Provident Fund (EPF) and Voluntary Provident Fund (VPF) work on similar lines. “Under EPF, both employee and employer contribute based on company policy, while VPF is a voluntary top-up made only by the employee without any employer matching. VPF lets employees channel a higher share of salary into disciplined, long-term savings at source. The same rules apply to withdrawals, lock-in and taxation,” says Joseph.

 

Both EPF and VPF are dependable options for salaried individuals, offering capital safety, disciplined savings and favourable tax treatment with minimal risk. The rate of return was 8.25 per cent for FY2024-25. “Contributions qualify under Section 80C and withdrawals are largely tax-efficient. The main drawback is limited liquidity, with an effective lock-in until retirement. Returns are stable but policy-driven and may seem moderate over time, making them better suited for conservative, retirement-focused investors rather than flexible or high-growth seekers,” says Panjiar.

Opting for PPF

Public Provident Fund (PPF) is a government-backed, long-term savings scheme offering capital protection and stable returns of 7.1 per cent. “It enjoys exempt–exempt–exempt (EEE) tax status, with contributions eligible under Section 80C and tax-free interest on maturity. With a 15-year lock-in and limited liquidity, PPF suits conservative investors and salaried taxpayers seeking low-risk, tax-efficient long-term savings rather than short-term goals,” says Sanjoli Maheshwari, executive director, Nangia & Co.

Investing in ELSS

Equity Linked Savings Scheme (ELSS) is a popular tax-saving instrument,  offering Section 80C benefit along with higher growth potential due to its equity exposure. “It has the shortest lock-in among tax-saving instruments at 36 months and allows systematic investment plan (SIP) investments. While ELSS has delivered strong long-term returns, it comes with market volatility, making it suitable for investors with a long-term horizon and comfort with equity risk,” says Joseph.

NPS: Benefits and drawbacks

The National Pension System (NPS) is a government-regulated, market-linked retirement scheme offering long-term growth through equity and debt exposure. “NPS can be seen as a retirement-focused alternative to PPF, offering a government-regulated framework with market-linked returns and a structured income stream after retirement,” says Joseph.

 

Its key benefits include low costs, professional fund management and extra tax deductions under Section 80CCD(1B). “However, liquidity is restricted until retirement, partial withdrawals are allowed only for specific reasons, and a portion of the corpus must be used to buy an annuity, income from which is taxable. NPS suits long-term, disciplined investors seeking tax-efficient retirement savings,” says Maheshwari.

Other tax-saving options

Apart from EPF, PPF, ELSS and NPS, investors opting for the old tax regime have several other effective last-minute investment options to lower their tax liability.

 

“They should first review the Rs. 1.5 lakh Section 80C limit, which covers not only EPF, PPF and ELSS but also five-year tax-saving fixed deposits, Senior Citizen Savings Scheme (SCSS) and Sukanya Samriddhi Yojana, life insurance premiums, home loan principal repayment and eligible tuition fees. Beyond this, deductions can be claimed for health insurance premiums under Section 80D, eligible donations under Section 80G, and house rent allowance (HRA) exemption for salaried individuals paying rent,” says Tarun Garg, director, Deloitte India.

Match tax savings with goals and horizons

Tax-saving should be aligned with financial goals, not the other way around. “Short-term needs require liquidity, medium-term goals call for balanced risk, and long-term objectives like retirement can accommodate longer lock-ins and market exposure. This approach improves outcomes and avoids future liquidity stress,” says Panjiar.

 

Investors should also avoid concentrating all tax savings in a single product. Choices should reflect age, risk appetite and time horizon. “Younger investors with a 15–30 year career runway can afford higher equity exposure through ELSS or the equity component of NPS. As goals evolve, the mix should change—early in one’s career, stable instruments like PF may dominate, while rising income and corpus-building needs allow for greater use of equity-linked options,” says Joseph.

 

The key is to build a diversified mix that balances tax savings, stability and growth

Common mistakes to avoid

The most common mistake is investing purely for deductions, without assessing suitability or long-term implications. “Buying insurance products without evaluating coverage needs, ignoring lock-in periods, and underestimating liquidity constraints are frequent issues,” says Panjiar.

 

Delaying tax planning until the last minute instead of starting early in the year is also a major mistake. Another is relying only on stable instruments while ignoring equity, especially for younger investors. “Choosing products solely for tax benefits without considering lock-ins, suitability and returns can hurt long-term outcomes. Tax-saving should support broader financial goals, not drive investments on its own,” says Joseph.

 

Poor documentation and last-minute decision-making further compound the problem. Consistent planning through the year, rather than a year-end scramble, remains the most effective way to achieve both tax efficiency and financial clarity.