How ELSS Helps You in Cutting Tax Liability?

Mon, 12 Jun 2023 18:04:26 +0000

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?

The fund offers tax deductions of up to Rs. 1,50,000 a year under the section 80C provision.
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

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%

There is no upper capping in ELSS investment. On the other hand, minimum capping depends on the mutual fund house.
It is the only tax-saving investment that offers inflation-beating interest. Also, it is the highest among all other options in section 80C.
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.

Choose the platform through which you will invest.
In the category, select the option “Tax Saving”.
Select the fund you want to invest in.
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.

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All About Equity Linked Saving Scheme (ELSS )

Fri, 19 Mar 2021 12:36:21 +0000

The Buyt Desk

Investing without a well-thought financial goal forfeits the very purpose of investment. More than often we have seen people investing a big lump sum amount at the time of filing their income tax return just to save their tax. If you do have a big amount to invest and you are eyeing tax benefit then Equity Linked Saving Scheme (ELSS) would be an ideal investment product. ELSS is a type of mutual fund that invests in equity markets.

Features of ELSS

ELSS is a tax-saving instrument that provides high returns. It enjoys a tax deduction of up to Rs.1.5 lakhs under Section 80C of the Income Tax Act.
Your money is locked for 3-years in ELSS. If you intend to invest through monthly SIP contribution then do keep in mind that each contribution will have a lock-in cycle of 3 years. A contribution made in April 2021 will be locked in till April 2024. So every Sip will be maturing after 3 years. So overall the lock-in extends for around 5-6 years. But if you invest lump sum then the lock-in cycle would be shorter.
There is no investment limit in the case of ELSS. Moreover, the minimum investment amount can be as low as Rs.500.
The returns from ELSS are not taxed according to your income tax slab. Long-term Capital Gains Tax (LTCG) of 10% applies to the returns of ELSS. The returns up to Rs.1 lakh in a financial year are exempt from taxation.
As with any type of mutual fund, an expert fund manager invests the money for you. Investment can be a lump sum amount or regular payment through a Systematic Investment Plan (SIP). ELSS provides two investment options: growth and dividend. The dividend option gives you a payout at regular intervals. While the fund manager re-invests the returns in the case of the growth option.
The fund manager invests money in diverse shares ranging from Small-Cap companies to Large-Cap companies. Diversification of the portfolio also includes investing in shares of companies from different sectors such as automobile, pharmaceutical, cement, etc.

Advantages of ELSS

ELSS is a great tax-saving instrument. It is eligible under Section 80C of the IT Act. The returns up to Rs.1lakh in a financial year are exempt from taxation. Further, only a 10% LTCG tax applies instead of income tax on the returns.
Among all the tax-saving instruments, ELSS has the lowest lock-in period.
In addition to saving tax, ELSS has the potential to provide high returns with a high investment horizon because it is linked to the equity market.
It offers portfolio diversification and is managed by an expert professional.

Disadvantages of ELSS

As ELSS is an equity fund, the returns vary with market fluctuation. The risk is averaged out by staying invested for more than 5 years. There are tax-saving instruments that give guaranteed returns, for example, tax-saving FD.
The returns from ELSS are not tax-free. A tax-saving instrument like PPF provides tax-free income.
There is no way to prevent or reduce exposure to the equity market in ELSS. A tax-saving instrument like ULIP offers flexibility to switch the investment between equity or debt funds.
Understand the lock-in period of an ELSS before investing in it. The policy of first in first out applies to the SIP contribution. Evey SIP will follow a three-year cycle of lock-in.

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