The Buyt Desk
If you to invest money in a manner that will help you save tax then equity linked saving scheme could be a smart choice. Under section 80C of the Income Tax Act, 1961 a maximum investment of 1.5lakh can be claimed as a tax deduction. Equity Linked Saving Scheme (ELSS) investment can give you the benefit of a Section 80C deduction. It comes with multiple benefits apart from providing you with a safe option for wealth accumulation and tax deduction.
What is Equity Linked Saving Scheme?
It is the only mutual fund eligible for tax deduction under section 80C provision of the Income Tax Act 1961. In this mutual fund, 65% allocation goes into equity and equity-linked securities like listed shares. It may have some exposure to fixed-income securities as well. The best part of this fund is that it comes with the shortest lock-in period of 3 years as compared to the other investment avenues in section 80C. It allows you to invest as much as you wish, but the tax benefit will be on 1.5 lakh. The scheme has been broadly classified into two types.
Growth Funds – This is a long-term wealth creation platform, and the investor receives the full value at the time of redemption.
Dividend Funds – This has been again divided into Dividend Payout and Dividend Reinvestment. In the first option, Dividend Payout, you get a tax-free dividend. On the other hand, in Dividend Reinvestment, the dividend received is reinvested as a fresh investment.
What are the Upsides of Investing in ELSS Over Other Options in 80C?
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The fund offers tax deductions of up to Rs. 1,50,000 a year under the section 80C provision.
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It has the shortest lock-in period. The lock-in period of all options in 80C is as follows
|
Investment |
Lock-in Period |
|
Equity Linked Saving Scheme (ELSS) |
3 years |
|
National Savings Certificate |
5 years |
|
Public Provident Fund |
15 years |
|
Employee PF and VPF |
More Than 15 years |
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The return that you earn in ELSS is better than the other investment options
|
Investment |
Estimated Return |
|
Equity Linked Saving Scheme (ELSS) |
15-18% |
|
National Savings Certificate |
7-8% |
|
New Pension Scheme |
8-10% |
|
Public Provident Fund |
7-8% |
|
5 Year Bank Fixed Deposit |
6-8% |
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There is no upper capping in ELSS investment. On the other hand, minimum capping depends on the mutual fund house.
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It is the only tax-saving investment that offers inflation-beating interest. Also, it is the highest among all other options in section 80C.
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It gives twin benefits. You can create wealth while saving tax.
How to Start Investing in ELSS?
Investing in ELSS is easy. You can do it online too. To start, you need to open an account with the fund house of your choice and complete the KYC process there. After the verification, you can invest the following way.
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Choose the platform through which you will invest.
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In the category, select the option “Tax Saving”.
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Select the fund you want to invest in.
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Tap on “Invest Now”. Follow the remaining process to start.
The features mentioned make ELSS a better option to save tax and accumulate capital. However, keeping all precautions while selecting the fund house will protect you from risks. A direction from an expert is good if you are doing it for the first time.
Also, ELSS redemption is not tax-free. The long-term capital gain of Rs 1,00,000/year is tax-free. Gain above the limit, attract tax of 10% in addition to applicable surcharge and cess.
The dividend you receive from your investment is added to the overall income and taxed according to the tax slab you fall. Despite all the conditions, it is the best tax-saving option under section 80C of the income tax act.
