There is no need to wait till March end for planning your tax saving investments. Financial decisions made in a hurry, almost always goes wrong. During year end, you are always under pressure to take quick decisions, and you may get influenced by the pitch of a salesman. You may also want to hurry up to show a receipt to your office accountant so that he does not deduct TDS.
A wrong decision may block your funds for a very long time as all tax saving investments have long lock-in periods. You may think it convenient to put your funds in PPF but then you will end up with a fifteen-year lock-in, compared to just three years for an ELSS fund.
So plan now for your tax savings. You will not only make a better choice, but will also be able to do it stress-free. You will be able to plan for better returns with lower lock-in periods. Pay especial emphasis to using SIP in ELSS funds instead of hurriedly investing a lump sum in March.
ELSS funds or Equity Linked Savings Scheme of Mutual Funds have some really attractive advantageous for tax saving.
One benefit is that ELSS funds are unique in being the tax-saving investment that brings the maximum gains of equity returns. Although ULIPs and the National Pension System (NPS) also give equity-linked returns but ULIPs have long lock-in – at least ten years and high costs and poor transparency. The NPS is a not a savings investment option, it is a retirement solution having only partial exposure to equity, has a very long lock-in period, and returns from NPS are taxable.
The investments made in ELSS schemes are eligible for income tax deduction U/S 80C
Why Invest in Tax Saving Funds?
1) Higher Earning Potential : Since ELSS mutual funds invests in equity related instruments, these schemes would help you to grow your money over a period of time.
2) Save Tax u/s 80C up to Rs 1.5 Lakh: By investment in ELSS mutual funds, you are eligible for tax exemption up to Rs 1.5 Lakh u/s 80C.
3)Shortest Lock-in period of 3 years: ELSS mutual funds come with the shortest lock-in period of 3 years with comparison to other tax saving investments.
4) Tax Free Returns : None of the returns from best tax saving investment options other than PPF are tax free. All the tax saving schemes return are taxable based on individual tax slab. However, interest in Public Provident Fund is tax free, but that comes with a 15 year lock-in period .
How ELSS Scores over other Tax Saving Options
|Lock-in period (Years)
||8.5% or 8.8%
|Tax on gains
||Tax on interest earned
||Tax on interest earned
||Maturity/claims proceed tax free
||Dividends & Capital gains are tax free