Tax payers can claim deductions of up to Rs 1.5 lakhs every year from their gross taxable income by investing in various schemes allowed in Section 80C of Income Tax Act 1961. 80C investments like Public Provident Funds (PPF), National Savings Certificates (NSC), tax saver term deposits etc are risk free investments. Equity Linked Savings Schemes (ELSS) and Unit Linked Insurance Plans (ULIPs) are subject to market risks.
Equity Linked Savings Schemes are diversified equity funds with a lock-in period of 3 years. These funds diversify across different industry sectors and market capitalization segments. You can start investing in ELSS with minimum Rs 500 only. There is no upper limit of investments in ELSS; however, you can claim tax deduction of up to Rs 1.5 lakhs u/s 80C only. You can invest in SIP either in lump sum or through SIP. If you are investing in ELSS through SIP, then each SIP installment will be locked in for 3 years.
Comparison of ELSS with other 80C options
Why invest in ELSS?
Wealth creation by ELSS
The table below shows how much wealth you could have accumulated through a monthly SIP of Rs 10,000 in select top performing ELSS funds over the last 10 years (ending 27th December 2021). Please note the schemes in the table below have been selected purely for illustrative purposes and should not be taken as investment recommendations. Past performance may or may not be sustained in the future. You should consult with your Eastern Financiers financial advisor to select schemes suited for your risk appetite and tax planning needs.
Taxation of ELSS
Capital gains of up to Rs 1 lakh in ELSS investments is tax exempt in a financial year and taxed at 10% plus surcharge and cess thereafter. If you invest in the IDCW option of ELSS funds, then the dividends received by you in a financial year will be added to your income and taxed as per your income tax slab.
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Who should invest in ELSS?
You should consult with your Eastern Financiers financial advisor regarding your tax planning and discuss if ELSS is suitable for your tax planning and long term investment needs.