A significant amount of your earning is usually eaten away by taxes. To ensure you keep more of what you make, tax planning becomes imperative. Which means, you need to invest your money in places that help you save taxes and even better – earn something out of them.
While there are many tax saving instruments available in the market, you have to be wise while selecting one. Just keeping your money in PPF or NSC to claim tax-break would yield moderate returns. If you want to make your money work harder and earn higher returns, then mutual funds can be a great place to invest.
This is where Equity Linked Savings Schemes (ELSS) come into the picture. With a 3-year lock-in period, they have the potential to earn higher returns than most tax-saving options and reduce your taxable income by Rs. 1, 50,000.
WHY SHOULD I OPTION FOR ELSS?
• Income Tax Benefit: Investments made in ELSS plans are entitled for deduction from the taxable income under Section 80C of the Income Tax Act.
• There is no limit for investments in ELSS plans, but investments of up to Rs. 1, 50,000 qualify for income tax benefits. Investments made in standard mutual funds (other than ELSS plans) do not qualify for income tax deduction.
• 3 Year Lock-in Period: Investments made in ELSS plans have a lock-in period of 3 years which inculcates a long-term investing discipline. This lock-in period is not available in the case of standard mutual funds.
EQUITY LINKED SAVINGS SCHEMES:
The many advantages of ELSS funds: ELSS funds are an advantageous way to use the Rs 1.5 lakh limit for tax saving investments under Section 80C. This limit has been sharply enhanced in FY 14-15 than it was earlier, but, for many people, a good part of it gets consumed by statutory deductions.
Unfortunately, all the statutory deductions are invested into fixed income instruments. Now, the Government has even placed some tax deductible expenses under Section 80C.Within this limit, ELSS is the better way to get the advantages of equity investing.
ELSS to Build Wealth: It’s the equity element that gives ELSS it’s unique wealth-creation abilities. How to get sustained high returns is one of the most frequent asked questions from the field of finance. The answer is simple; invest systematically and over time, the impact of compounding will help in generating returns. This easy to follow approach is applicable to every type of investor; the low risk taker to those who can take more risk. The outcome for both will be the same; the difference being a low risk taker will take longer time to build a large kitty over the one who is a willing risk taker.
Pay less Tax with your investment: There are a wide range of investments that allow you to reduce your tax liability. Section 80C offers a window of investment opportunities for up toR1.5 lakh investment in each financial year. This benefit is available to everyone, irrespective of their income levels. For instance, if you are in the highest tax bracket of 30 per cent, the investment of R1.5 lakh under this section will save you R46,350 each year (for income up to R1 crore).