New Delhi.Taxparens always try their best to save tax, especially under the provisions received under Section 80C of Income Tax, to save their tax. There are more than a dozen ways to save tax under this section and it is not an easy task to choose any one of these proper methods. Some of these dozen products offer sure returns, while some offer returns related to the market. Under Section 80C in 30 percent of the income tax, a person can invest a real tax savings of Rs 46,800 per year with the current tax rules (with 4 percent education cess) by investing a full Rs 1.5 lakh in a financial year.
When it comes to tax savings, a salaried taxpayer adopts important tax saving way through contribution to the Employees Provident Fund (EPF). It limits opportunities to invest in other options providing fixed returns to the remaining amount under the limit of Rs 1.5 lakh. Equity linked savings scheme (ELSS) is better among market linked options. Let’s know every question from Ajit Menon, CEO (PGIM India Mutual Fund).
Question: What is ELSS?
answer: ELSS is an equity mutual fund category, in which tax exemption is available under Section 80C of Income Tax on investment. According to the current tax rules, the eligible investors (individual/HUF) are entitled to reduce the amount of up to Rs 1,50,000 in the equity linked saving scheme (ELSS) under Section 80C of the Income Tax Act, 1961. The calculation of tax savings of Rs 46,800 mentioned above is based on a high income tax slab. By adding the current 4 percent education cess on tax including cess, savings will be Rs 31.2 percent or Rs 46,800 per year. Long -term capital profit and dividend distribution tax will also have to be paid on this.
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Question: How can tax be saved?
answer: Tax profit depends on the provisions of Income Tax Act, 1961 and the amendments that occur from time to time. However, it is necessary to keep in mind here that tax savings through investment in ELSS are only possible when the taxpayer selects the current system of tax rate. In the new system of tax rate, the taxpayer does not get the benefit of any type of deduction. Investment in ELSS should be 80 percent of the minimum equity investment to achieve a sense of equity fund, which can be technically up to 100 percent. The ELSS also has the liquidity of investing in all market capitalization, which makes it a flexible and specific investment products between equity funds.
Question: How long can you invest?
answer: The lowest three -year lock in period for investment in ELSS is a 5 -year lock in period in other tax saving instruments. Three -year lock in means that you cannot sell units purchased before the completion of three years from the date of procurement. Investment through Systematic Investment Plan (SIP) in mutual funds has been made convenient and it can be invested throughout the year with Rs 12,500 per month instead of the last -time harassment. However, the lock in duration is different for each SIP installment, which means that each monthly SIP remains locked for a period of 3 years.
Question: Method of better returns
answer: There is another reason to select ELSS as an option to save tax, its possibility of providing high returns. Investment in equity effectively provides better returns which exceeds inflation rate regularly. On the other hand, most of the tax saving options with most fixed returns such as PPF, 5 years FD, NSC etc. are difficult to give more returns than inflation. Not only this, in the last decade, a certain return from such tax savings products has decreased, due to which the attraction towards them is also decreasing.
Question: Tax is levied on benefits from ELSS
answer: The amount received from the profit and redemption on investment in ELSS is also completely taxed. ELSS offers better post tax returns, as long -term capital benefits (LTCG) are exempted from income tax of up to Rs 1 lakh from ELSS mutual funds. Tax is payable at the rate of 10 percent on more profit than this limit. Except PPF, partial or complete tax is to be given on the benefits from other tax savings options.
The characteristic of tax savings in ELSS as well as making property makes it an appropriate and better first equity investment option for all investors. For the first time investors benefit from compulsory lock in and get incentive from tax savings. Experienced investors can benefit by including ELSS in their investment portfolio to achieve their financial goals. Overall, taxpayers can avail various features of ELSS for reducing their income tax responsibilities, experience of mutual fund investment and property building.
