For investors looking to take advantage of tax returns by investing in Mutual Funds, must opt to invest in an Equity Linked Savings Scheme (ELSS). Tax planning may seem like a tedious activity requiring a lot of effort. Equity Linked Savings Scheme (ELSS) offers a simple way to get tax benefits. Equity Linked Savings Scheme (ELSS) is an open-ended Equity Mutual Fund that help to grow your money and save tax at the same time as it qualifies for tax exemptions under section under Section 80C of the Income Tax Act, 1961.
Let’s take a look at how ELSS works out:
|Gross Total Income
|Less: 80C deduction (ELSS)
|Tax on Total Income (Including Cess)*
|Tax Saved(Including Cess)*
*Without ELSS, the investor falls in Rs.5-10Lakhs Income Tax Slab making the Tax rate at 20% + 3% of Income Tax as Cess; While with ELSS the investor falls in Rs. 2.5-5Lakhs Income Tax Slab making the Tax rate at 5% + 3% of Income Tax as Cess after the deduction under Section 80C of the Income Tax Act, 1961.
**The Maximum amount that can be claimed for Tax Deduction under Section 80C is Rs. 1,50,000/-
- Also note, no other Tax deductions have been considered; a more detailed tax calculation could show a much more substantial tax saving with ELSS. Calculate your Income Tax payable here.
Though Banks and other financial institutions also provide for Tax saving Fixed Deposits, ELSS is certainly the better option as the Lock-in period is only 3 years as opposed to 5 years in Bank Fixed Deposits.