Opt for ELSS to save tax under Section 80C
There are multiple investment options that help us save taxes. However, the irony associated with most of the tax saving options is that in order to save tax, we need to spend a specific amount of our earnings; which in a layman’s term is no less than yet another expense. But, think of an option where the amount you spend towards an investment not only helps you save tax but also build a corpus for your future?
Yes, when you invest to save tax, you ensure to put away a part of our income for future needs. However, at the same time it is also important to note that the money you save does not lose its value against inflation. Therefore, it is important to look for right investment avenues which would not only help you save tax but also build wealth through disciplined investing. One such investment option is available under Section 80C of Income Tax — Equity-Linked Saving Scheme (ELSS).
Understanding Sec 80C — 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.
Why invest in ELSS?
ELSS funds are one of the best avenues to save tax under Section 80C. This is because:
a. along with the tax deduction, the investor also gets the potential upside of investing in the equity markets
b. no tax is levied on the long-term capital gains from these funds
c. compared to other tax saving options, ELSS has the shortest lock-in period of three years.
What investment options are available in an ELSS?
Growth option — Under growth option, any income/profit earned by ELSS increases the NAV of the option and vice versa. Whenever the investor sells his holdings, he will realize long term capital gain/loss.
Dividend option — In this option, ELSS distributes income earned by it to the investors as dividends. The date of distribution of same is declared by the fund, however if the ELSS has negative income it will not give any dividend. Any dividend received by the investors, is not liable for tax in the hands of investors.
The other investment options under this section include:
1. Provident Fund & Voluntary Provident Fund
2. Public Provident Fund
3. National Savings Certificate
4. Stamp Duty & Registration Charges for Home
5. Life Insurance Premiums
6. Home Loan Principal Repayment
7. Five-Year Bank Fixed Deposits
