Planning your taxes is intrinsic to your financial planning. To plan well, Sec 80C of income tax act allows you to claim deductions from your taxable income by making certain investments. Equity linked savings scheme (ELSS) or tax saving mutual funds are one such popular investments of Sec 80C.
Equity linked saving scheme is ideal for twin benefits – Capital appreciation and the tax benefits.
Let’s know how ELSS can be your right choice for tax saving investments.
Features of LSS
- Saves tax
- Three year lock-in
- Could be held after the completion of years also
- Both dividend and growth options are offered
- The best tax saving instrument
ELSS has both the dividend and growth options
Investors get a lump sum on the expiry of 3 years in growth schemes and in a dividend scheme, investors get a regular dividend income whenever the dividend is declared by the fund, even during the lock-in period.
Tax Tax Tax
The returns from this fund & the long term capital gain both are both tax-free. This is due to no taxes levied on equities held for more than a year. You are allowed to claim up to Rs 1.50 lakhs from your investments as a deduction from your total gross income.
Why ELSS over other schemes?
Systematic Investment Plan (SIP) – It is an investment vehicle offered by mutual funds allowing them to invest using small amount instead of lump sum. Plan systematically and invest in ELSS through SIP.
Shorter lock-in period – It has a lock in period of 3 years compared to other tax saving instruments.
Long term capital gains – An ELSS fund invests in equity and is managed by a professional fund manager. It has the potential to provide long term capital gains compared to other asset classes.
Under section 80C of income tax act, any investment in ELSS equity funds is exempt from income tax (subject to a cap of Rs 1.5lakhs on investment amount). Hence, this can be deducted from your income before calculating taxes. There is also a lock-in period of 3 years and during these years if there are any gains they are tax free also the withdrawal amount after 3 years is tax free.
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