Tax season is knocking on the door and taxpayers are searching for ways to save on taxes. A common dilemma which any taxpayer is facing today is choosing between ELSS and the new optional tax regime which requires them to forgo all the deductions.
What is ELSS?
ELSS mutual fund means equity-linked saving scheme also known as tax saving funds, as they provide taxpayers with an option to claim tax deductions up to 1.5 lacs under section 80C of the income tax act. Long term investment goals and ELSS can go hand in hand if a person ignores the volatility of the market and invests in the mutual fund.
TYPES OF ELSS MUTUAL FUNDS
ELSS funds are comprehensively ordered into dividend funds and growth funds
A. Growth Fund is a long haul riches creation stage for financial specialists where the full estimation of the store is acknowledged at the hour of recovery.
B. Dividend Payout has two sub-classifications – Dividend Payout and Dividend Reinvestment. Under the Dividend Payout choice, you will get tax-exempt profits. On account of Dividend Reinvestment, your profits will be reinvested as another venture.
FEATURES
1. ELSS funds invest a large percentage of their portfolio in equity.
2. A compulsory lock-in period of 3 years, meaning than an individual cannot touch the invested amount during this time. This is the shortest lock-in period amid all tax saving options.
3. A taxpayer enjoys both benefits of capital appreciation from investments in equity along with tax saving options.
4. A person can opt for or dividend payouts if they wish to receive regular income or go with the growth option for capital appreciation.
5. Though, ELSS funds come with some risk but are known to generate returns in the range of 10% to 12% in the long run, which is highest in the tax saving options.
WHY ELSS IN BETTER?
1. Given the ELSS invests predominantly in the equity instruments, the returns are much higher than most investment options with tax-saving benefits in the long run.
2. ELSS has a shorter lock-in period.
3. Another clear advantage that ELSS enjoys over its counterpart is that it can be coupled with PPF for more significant benefits.
4. ELSS also acts as a strong shield to weather the volatility that may come with investing in stock markets.
THINGS TO KNOW ABOUT ELSS BEFORE YOU INVEST
1. One may put any sum you like in an Equity-Linked Savings Scheme. Be that as it may, ventures just up to Rs 1,50,000 a year are tax-exempt under Section 80C of Income Tax Act, 1961.
2. It is extraordinary compared to other speculation choices that offer tax reductions with possibly more significant yields and short lock-in period (3 years).
3. The Long-Term Capital Gains on ELSS are charge excluded up to Rs 1 lakh, and profit got is tax-exempt in the hands of speculators.
4. You can keep on putting resources into this plan much after the consummation of the lock-in time of three years.
5. The hazard associated with ELSS is higher when contrasted with a fixed store or PPF, however, the profits can possibly be progressively raised.
CONCLUSION
For those looking towards wealth creation through investment and other tax-saving instruments, ELSS funds are the most viable options available in the market today. Introduction of the new tax regime by the government has reduced the popularity of the ELSS funds, though many experts differ on the opinion and say that it is very early to give verdict on the fate of ELSS as it is one of the best options available in the smart investments market and tax saving.
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