How ELSS overcomes all other tax saving instruments

Paying taxes is sometimes felt to be a burden as you have to pay them just because you are earning a good income. Most citizens of the country find taxes unsustainable and therefore even try to avoid them. But why should we go into illegality when we have the opportunity to legitimately save on taxes? Yes, you heard that right as Section 80C of the Income Tax Act 1961 provides for the deduction of tax on all taxable income up to Rs. 1.5 lakh in any financial year. Among the various financial instruments, ELSS is one of the categories of equity funds that offer such an advantage. Accordingly, one can reduce the taxes up to Rs. 46,350 in one year by investing in top ELSS funds. So instead of opting for tax evasion, instead invest in the best tax-saving stocks to take deductions on your income.

There are several instruments that grant 80C deduction to investors in India including Fixed Deposits (FDs), Public Provident Fund (PPF), National Pension Scheme (NPS), LIC Policies and so on. All of these have several advantages, but the best among them are the ‘ELSS Mutual Funds’. By offering multiple benefits to investors, they help to achieve capital growth along with tax savings. Here are the characteristics of ELSS funds that make them different from others.

  1. Lowest lock-in period – In the case of the Equity Linked Savings Scheme (ELSS), the vesting period is the shortest compared to the other tax savings schemes. One only needs to remain invested in the ELSS programs for three years to reap the benefits and can redeem the funds immediately once the allotted time is up.
  2. tax benefit – Under Section 80C of the Income Tax Act, investors who park their money in the ELSS can claim the tax deduction of up to Rs.1.5 lakh in a financial year on total taxable income. This could significantly reduce your tax burden.
  3. capital appreciation – By investing funds in stocks and securities, the ELSS mutual funds offer the opportunity to achieve capital growth over a longer period. Since the minimum investment period in this category is three years, the money invested has enough chances of achieving higher profits on the market. In addition, the fund managers are given sufficient time to rebalance the investors’ portfolio according to the requirements.
  4. Tax Free Returns – Investing in the best ELSS funds also offers the benefit of tax-free returns. Interest or dividends earned on the Securities are not taxable for investors. In addition, the capital gain realized at the time the funds are sold is completely tax-free. Therefore, investors will not have to pay any tax on the income from such investments.
  5. Investment with a small amount – Minimum investment amount in case of Equity Linked Saving Scheme is only Rs.500. From now on one can invest with such a small amount to reap the benefits. The SIP plan in ELSS makes it more convenient for investors to make safe investments regularly and enjoy tax deductions at the end of the financial year. This allows you to achieve your long-term financial goals while reducing your tax burden.
  6. No limit for maximum investment – There is no limit for the investors to make a maximum investment in the ELSS funds as in the case of PPF. You can invest as much as you want to take advantage of the stock portfolio and grow rich over time.

Therefore, it is safe to say that ELSS mutual funds occupy an important position among all Section 80C tax savings vehicles. Investors who want the dual benefits of tax savings and capital growth need to park their funds in these plans.