With the financial year end closing in, every individual is looking for means to get tax benefits. Most of us look to harness the section 80C of Income Tax Act as it allows you to claim deductions from taxable income with certain investments. Apart from life insurance and the likes, a popular tax saving funds are tax free. is the ELSS or the Equity Linked Savings Scheme. This equity diversified fund affords investors the benefit of investment growth and tax deduction. Let’s get a better look at what thisplan can get you and how.
Equity Linked Savings Schemes are diversified equity mutual fund. They function by investing most of the amount in equities. So, the returns you get on these funds mainly depend on the performance of the equity markets. The lock in period for this plan is 3 years, starting from the date of investment. However, the investor can sell his plan after 3 years to exit. These taxsavingfundsalso offer dividend and growth options similar to the other equity funds. After the lock in period of 3 years, the investor can avail a lump sum. Under a dividend scheme, he can get a regular dividend income/ bonus when the dividend is declared, even during the lock-in period.
Tax saving with ELSS
To start with, the returns you get from this tax saving fund are tax free. To add to that, you can claim up to Rs.1 Lakh of the ELSS investment you make for tax deductionon your gross total income. This is a provision under section Sec 80C of the Income Tax Act, 1961. So, if you are in the 30% income tax bracket and have invested Rs.1 lakh in ELSS, then you can save up to Rs.30,900 in taxes annually.Tax savings of 30,900 is calculated assuming that the qualifying amount of deduction is 1 Lakh and the investor falls in the top income tax slab of 30% and includes applicable cess. Investors are advised to consult their tax advisor in view of individual nature of tax benefits. Further, tax deduction(s) available u/s 80C of the Income Tax Act, 1961 is subject to conditions specified therein. Investors are requested to note that fiscal laws may change from time to time and there can be no guarantee that the current tax position may continue in the future.
How ELSS is better than other tax saving instrument
Sure the market has many ‘safe’ tax saving instruments, but have you taken a close look at the lock in period they have –
• PPF investments are locked in for 15 years
• NSC investments are locked in for 6 years
• And with a bank fixed deposit, you need a lock in period of up to 5 years to get tax benefits
The lock in period of an ELSS plan is just 3 years, much less than any of the investment tools, to get the tax benefit you want.
These tax saving funds invest in equity markets and investing for a long term will fetch you great returns compared to what you can expect any other tax saving investments to give. Also, you can invest in SIPs to get into the habit of regular saving. Moreover, while your investments are in the lock in period, you can still get an income from them, if you invest in a dividend scheme.
ELSS the tax saving instrument you have been looking for