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Tax Saving Plans

Tax planning may seem like a tedious exercise requiring lot of efforts that may make an ordinary investor nervous at the first glance. Equity Linked Savings Scheme (ELSS) offers a simple way to get tax benefits and at the same time get an opportunity to gain from the potential of Indian equity markets.

What is ELSS?

Simply put, ELSS is a type of diversified equity mutual fund which is qualified for tax exemption under section 80C of the Income Tax Act, and offers the twin-advantage of capital appreciation and tax benefits. It comes with a lock-in period of three years.

Rupee-Cost Averaging

With volatile markets, most investors remain skeptical about the best time to invest and try to 'time' their entry into the market. Rupee-cost averaging allows you to opt out of the guessing game. Since you are a regular investor, your money fetches more units when the price is low and lesser when the price is high. During volatile period, it may allow you to achieve a lower average cost per unit.

Why should one invest in an ELSS?

ELSS funds are one of the best avenues to save tax under Section 80C. This is because along with the tax deduction, the investor also gets the potential upside of investing in the equity markets. Also, no tax is levied on the long-term capital gains from these funds. Moreover, compared to other tax saving options, ELSS has the shortest lock-in period of three years.

BEYOND TAX SAVING

Parameter PPF NSC ELSS
Tenure 15 years 6 years 3 years
Returns (Compounded Annually) 8.80 % ^ (Compounded half-yearly) 8.60 to 8.90 % ^ Not assured dividends/ returns
Minimum investments Rs.500 Rs.100 Rs.500
Maximum investments Rs.1,50,000 No limit* No limit*
Amount eligible for deduction under Section 80C Rs.1,50,000 Rs 1,50,000 Rs 1,50,000
Taxation for interest Tax free Taxable Dividends and capital gain tax free
Safety/ Rating Highest Highest High Risk

 

  • There is no upper limit on investments. However, investments of only upto Rs.100,000 per year are allowed to be claimed as deductions under Section 80C of IT Act.

Source: http://finmin.nic.in, Rates incorporates compounding wherever applicable.

Disclaimer: The comparison of ELSS Vs other tax savings instrument has been given for the purpose of the general information only. Investment in ELSS carry high risk and any investment decision needs to be taken only after consulting the Tax Consultant or Financial Advisor. SGinscon will not accept any liability/ responsibility/loss incurred on any investment decision taken on the basis of this information.