Have you ever thought about saving taxes while creating wealth? If yes, then you can rejoice now because there is a perfect single instrument that can aid you in achieving both objectives smoothly.
Equity Linked Savings Scheme (ELSS) is a single plan, popularly known as the tax-saving mutual funds. ELSS schemes are the best financial instruments that enable you to claim tax deductions. You can invest in ELSS schemes and get the dual benefit of tax deductions and wealth accumulation over a while.
Equity Linked Savings Schemes are tax-saving mutual funds that invest mainly in financial instruments related to equities. An equity-linked savings scheme or an ELSS fund is a mutual fund that comes under Section 80C of the Income Tax Act, 1961, and is eligible for tax deductions. This category of mutual fund invests more than 65% of the corpus in equity or equity-related instruments. ELSS schemes have the shortest lock-in period of just three years, making ELSS investment one of the best ways to save taxes to create wealth over a period.
There are two modes available to invest in ELSS scheme:
Below are the factors, you have to consider while choosing to invest in tax saving mutual funds:
Unlike normal mutual funds, ELSS Schemes attract several investors. ELSS Schemes are tax-saving mutual funds that allow tax deductions of Rs. 1.5 Lakh per annum from the investments, under Section 80C of the Income Tax Act. This means based on the amount you invest in ELSS your taxable income can be reduced, which in turn will lower your income tax.
Besides that, after a 3 years lock-in period, tax exemption is applicable to your maturity amount or the amount earned by your ELSS if it is equal to or below Rs. 1 Lakh. In case, the amount is more than that, then a long-term capital gains tax of only 10% should be paid. In this way, you can pay fewer taxes using ELSS and save up on your money.
Market volatility occurs over short periods, and staying invested for a longer duration means that your investment will be safe from that. As per many seasoned investors, the best way to accumulate wealth is to stay invested for long periods.
When compared to other tax-saving funds, ELSS Schemes provide you with significantly better returns over the long term. So, even though ELSS has a short lock-in period of 3 years, you can always invest in ELSS schemes as long as possible for greater returns.
When you look to invest In tax-saving mutual funds, the Equity Linked Savings Scheme is possibly one of the most beneficial tools for building a sizable corpus over a long period. And there are three main reasons.
1. Tax benefits are subject to the provisions of the Income Tax Act, 1961 and are subject to amendments, from time to time.
2. Mutual Fund investments are subject to market risks, read all scheme related documents carefully before investing.
3. *Calculated at 30% tax bracket (as per old tax regime) and includes 4% cess
4. Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Please consult your own tax consultant to know the tax benefit available to you.