How to save tax
under Section 80C using Equity Mutual Funds
Come December
and employees will have to submit proof of investments at the workplace, else
tax will be deducted in coming months.
You can save
tax by investing up to Rs 1.50 lakh in equity-linked savings scheme ( ELSS)
under Section 80C of the Income Tax Act.
1. What is an
ELSS scheme, or tax savings schemes? How much can one invest in them?
Equity-linked
savings schemes (ELSS) are investments in a scheme that offer the option to
save tax. These funds invest in equities and investors can choose from either
the dividend or growth option.
You can invest
any amount up to ?1.5 lakh in ELSS to save tax. Since such schemes invest in
equities, they give investors the opportunity to earn higher returns over the
long run. However, as is the case with allmutual fund schemes, there’s no
guarantee of any fixed returns.
2. How does one
invest in an ELSS scheme?
Once an
investor is KYC-compliant, he can invest in an ELSS scheme just like the way he
does in any other mutual fund scheme.
Investment can be done by filling the
relevant form and writing a cheque, either through online fund house websites
or through online portals. It is also possible to invest using SIP or
STP.
3. Does ELSS
have any advantage over other tax saving schemes available under Section
80C?
Amongst all the
tax saving schemes, ELSS has the shortest lock-in period of three years, while
the Public Provident Fund (PPF) has a minimum lock-in of 15 years, and allows
only conditional withdrawal before that.
The Employee Provident Fund is usually
locked in for the term of your employment. Other tax saving products such as
Tax-Saving Fixed Deposits, or the National Savings Certificate (NSC) are locked
in for a period of five years and more.
The National Pension Scheme (NPS) is
locked in until you are 60, and only allows conditional withdrawal. If you opt
for the dividend option, you can get intermittent cash flows as well in ELSS
schemes. Finally, in an ELSS scheme, you do not pay any tax on dividend or when
you redeem the units.
4. What options
does an investor have once the compulsory lock-in period of three years is
over?
Investors have
the option to continue to hold the mutual fund units after three years or
redeem them. Financial planners recommend considering ELSS as part of equity
allocation and continuing to hold if it performs in line with investors’
expectations as it would help in meeting financial objectives.
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