ELSS Mutual Funds or Equity Linked Saving Schemes offer you a simple way to get tax benefits under Section 80C of The Income Tax Act 1961, while aiming to make the most of the potential of the equity market investing. Therefore, if the question how to save tax is bothering you, you can have a look at investing in ELSS tax saving mutual funds!
ELSS tax savings schemes are an open-ended equity mutual fund that doesn’t just help you save taxes, but also gives an opportunity to grow your money. It qualifies for tax exemptions under section (u/s) 80C of the Indian Income Tax Act 1961. Equity Linked Saving Schemes (ELSS) are essentially diversified equity mutual fund schemes, which invest in a diversified portfolio of stocks across different sectors and market capitalization segments for generating capital appreciation for investors over a sufficiently long investment horizon.
If you are worried about how to save tax, please note that when you invest in certain schemes like ELSS Tax Saving funds, Public Provident Fund (PPF), Tax saving bank fixed deposits, NSC and Life insurance premiums etc. you can claim up to Rs. 150,000 in a financial year as a deduction from your gross total income under The Income Tax Act, 1961.
The Table below will help further explain how this works –
(Illustration of Tax exemption for an individual less than 60 years in receipt of salary income for the assessment year 2019-20)
From the above chart you can see that, if you invest Rs 150,000 in any investment option under Section 80C including Equity Linked Saving Schemes, you can save substantial amount of taxes.
Let us now compare the features of Equity Linked Savings Schemes and other popular tax saving investment options under Section 80C of The Income Tax Act 1961.
As you can see in the above chart the feature of ELSS Mutual Funds are most attractive as it has the least lock-in period of 3 years and the potential returns are much more than the returns of any other tax saving investment options. Over and above this the returns of ELSS mutual funds are tax efficient too!
Therefore, knowing how to save tax is important but knowing where to invest for saving taxes is even more important. Even though the investments in tax saving mutual Funds are subject to market risks, they are one of the best tax saving investment options for investors with a long investment horizon. ELSS mutual funds has given annualized returns of over 18%, 12% and 11% respectively in the last 5 years, 7 years and 10 years period (Source: CRISIL - AMFIELSS Fund Performance Index March 2018) which makes it the most attractive investment option for savings taxes provided you are ready to take a bit of risk with your investment.
Mutual Fund Investments are subject to market risk, read all scheme related documents carefully.
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