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How will ELSS help save taxes? How will you get more profit with your money? Know the answer to all your questions

New Delhi.Taxpayers always do everything possible to save taxes, especially in what is established in article 80C of the Income Tax. There are more than a dozen ways to save taxes in this section and choosing one of them is not an easy task. Of these dozen products, some offer guaranteed returns, while others offer market-linked returns. Under Section 80C in the top 30 per cent income tax bracket, a person can invest the entire Rs 1.5 lakh in a tax year and get a real tax saving benefit of Rs 46,800 per year with the existing tax rules (with a 4 percent education rate) .

When it comes to tax savings, a salaried taxpayer can take a significant tax saving route by contributing to the Employees Provident Fund (EPF). This limits the opportunities to invest the balance below the limit of Rs 1.5 lakh in other options that offer guaranteed returns. Equity Linked Savings Scheme (ELSS) is best among market linked options. Let’s know the answer to each question from Ajit Menon, CEO (PGIM India Mutual Fund).

Question: What is ELSS?

answer: ELSS is a category of capital mutual funds, in which tax exemption is available under section 80C of the Investment Income Tax. In accordance with current tax rules, eligible investors (individuals/HUF) under section 80C of the Income Tax Act 1961, invest an amount up to Rs 150,000 in Equity Linked Savings Schemes (ELSS) ( along with other prescribed investments) for the amount to be paid to your total gross income. they are entitled to deduct from it. The tax saving of Rs 46,800 mentioned above is calculated on the basis of the highest income tax slab. Adding the existing 4 per cent tax education cessation including cessation, the tax savings per year would be 31.2 per cent at Rs 1.5 lakh or Rs 46,800. Tax on long-term capital gains and distribution of dividends will also be due.

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Question: How can taxes be saved?

answer: Tax benefits are subject to the provisions of the Income Tax Act of 1961 as amended from time to time. However, it is important to note here that tax savings through investment in ELSS is only possible if the taxpayer opts for the existing tax rate regime. In the new tax rate system, the taxpayer does not obtain the benefit of any type of deduction. To qualify as an equity fund investing in ELSS, the minimum equity investment must be 80 percent, which can technically be as high as 100 percent. ELSS also has the liquidity to invest across all market capitalisations, making it a unique and flexible investment product among equity funds.

Question: How long can I invest for?

answer: The minimum lock-in period to invest in ELSS is three years, while a lock-in period of 5 years is common in other tax saving instruments. The three-year lock-in means that you cannot sell the units purchased before completing three years from the date of purchase. Investing in mutual funds is facilitated through systematic investment plans (SIPs) and you can invest throughout the year with an investment of Rs 12,500 per month, instead of the last minute rush. However, the lock period is different for each SIP fee, which means that each monthly SIP is locked for a period of 3 years.

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Question: Way to get better returns

answer: Another reason to choose ELSS as a tax saving option is its potential to provide high returns. Investing in stocks effectively provides better returns that regularly exceed the rate of inflation. In contrast, most tax saving options with fixed yields like PPF, 5 year FD, NSC, etc. they hardly manage to give returns above inflation. Not only this, the fixed returns on such tax-saving products have declined over the past decade, which is also reducing their appeal.

Question: What is ELSS income tax?

answer: The gains from the investment in ELSS and the amount received from the redemption are also completely tax-free. ELSS provides better after-tax returns as long-term capital gains (LTCG) of up to Rs 1 lakh received in a year from ELSS mutual funds are exempt from income tax. Tax is paid at a rate of 10 percent on earnings above this limit. Earnings from tax-saving options other than PPF are taxable in whole or in part.

The wealth building feature coupled with tax savings in ELSS makes it a suitable and best first choice capital investment for all investors. First-time investors benefit from mandatory lock-in and tax savings incentives. Experienced investors can take advantage of the inclusion of ELSS in their investment portfolio to achieve their financial goals. In general, taxpayers can take advantage of various features of ELSS to reduce their income tax liability, enjoy the experience of investing in mutual funds, and build wealth.undefined

Tags: income tax, Income Tax Planning, Investment and return


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