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Section 80C of the Income Tax Act allows certain investments and expenditure to be deducted from total income up to the maximum of Rs. 150,000. Our Tax Savings Solutions help you to reduce your tax burden and at the same time, aim to grow your money through equity investments.

Benefits from Tax Savings Investments:

  • Reduce Tax Liability
  • Create wealth over a period of time

Tax saving is important for all tax payers. If you are in the highest tax bracket 30.9%, you can save tax up to Rs. 46,350/-. If you are in the tax bracket 20.6% or 5.15%, you can save tax up to Rs. 30,950/- and 7,725/- respectively.

Most common investment instruments for tax saving are –

  • Equity Linked Saving Scheme (ELSS)
  • Public Provident Fund (PPF)
  • National Saving Certificate (NSC)
  • Bank Tax Saving Fixed Deposit
  • Unit Linked Insurance Plan (ULIP)

Below is the simple comparison of these 5 options against few key parameter.

The best Tax Saving Investments for investors who would like to create wealth along with tax saving is ELSS Funds, followed by EPF/PPF. As per the past track record ELSS Funds have outperformed all other Tax Saving Investments by a huge amount but there is a risk associated with ELSS investments.

ELSS (Equity linked savings scheme) FUNDS

There are some mutual fund schemes specially created for offering you tax savings, and these are called Equity Linked Savings Scheme, or ELSS. Whatever investments that you make in ELSS are eligible for deduction under Sec 80C. Equity Linked Saving Schemes of mutual funds are nothing but diversified equity funds that have a lock-in period of three years and provide tax benefit and at the same has the potential to create wealth over a period of time.
Since a major portion of the amount is invested in equities or equity stock markets, the earning potential is higher as compared to other tax saving investments. Investors can invest up to rupees 1,50,000 in an ELSS fund and deduct the investment from their taxable income u/s 80C of Income Tax Act, thereby effectively reducing their tax liability.

Benefits of ELSS Funds

Provide double benefit of tax saving and Tax efficient returns. 

Income tax benefit – Investments made in ELSS schemes are eligible for deduction from taxable income under Section 80C of the Income Tax Act. 
Lower lock-in period – In comparison to traditional investment avenues like PPF, NSC under section 80C of the Income tax Act, ELSS funds have the shortest lock in period of 3 years. 
Tax-efficient returns – The profits on the sale of ELSS units are treated as long-term capital gains, and are subject to Income tax of 10% only if the gain is more than 1 lakh. 
Higher return potential – ELSS funds invest a large part of the fund in equity, which despite short-term volatility has the potential to build wealth over the long term.

Who should invest in ELSS Funds?

  • Investors looking for wealth creation over the long term
  • Investors looking for tax deductions under Section 80C
  • Investors having a time horizon of 3 years or more

How to invest into ELSS

There are two ways to invest in ELSS Funds:

  • Invest a fixed amount every month through a Systematic Investment Plan (SIP) in ELSS and ease the burden of large investments towards the end of the financial year.
  • Invest a lump sum amount at any point of time.

Why SIP is the best method for ELSS?

One of the best ways to invest is to save and invest on a regular basis. SIP is an investment method in which an investor invests small amounts in mutual funds at regular intervals.

In addition, SIP helps an investor take benefit of the volatility in the stock markets by rupee cost averaging and helps garner the advantage of compounding. Investment in an ELSS through SIP provides an investor the best combination of tax savings and capital appreciation. The minimum investment in an ELSS through the SIP route can be as low as rupees 500.

The lower lock-in period of 3 years in comparison to other tax savings instruments and the potential to take full advantage of growth through equities make ELSS funds a preferred investment option.

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