Taxation Articles

Tax Saving

There are various tax saving investment options where an individual can save Tax U/S 80-C of Income Tax Act. However, all such investment options come with certain limitations. One of the best ways to grow your money along with saving tax is to invest in Equity Linked Saving Scheme (ELSS) Mutual Funds in India.

PARTICULARS PPF NSC Senior Citizen Saving Scheme ELSS Bank Deposit ULIP Sukanya Samriddhi Yojna
Tenure (Years) 15 5 5 3 5 5 21 Years
Min. Invest(Rs.) 500 100 1000 500 10,000 Depending on the premium 1000
Max Investment 1,50,000 1,50,000 1,50,000 1,50,000 1,50,000 1,50,000 1,50,000
Adjusted Low Low Medium Very High Very Low Medium Medium
Return % CAGR 8.1 8.1 8.6 Market Linked 7.4 NA 8.6
Interest Frequency Compounded Annually Compounded Half Yearly Compounded Annually No Assured Dividends/Returns Compounded Quarterly NA Compounded Annually
Taxation of Interest Tax Free Taxable Tax Free Dividend & Capital Gains Tax Taxable NA Tax Free

What are Equity Linked Saving Scheme (ELSS) Mutual funds?
ELSS Mutual Funds in simple term are mutual fund schemes that invest in diversified equity related instruments that are notified to avail tax benefits. Investment in such ELSS MFs would provide tax benefit to investor’s u/s 80C, which is capped to a maximum of Rs 1.5 Lakh.

How do you benefit from ELSS Mutual funds?
There are various ways you would benefit from investing in ELSS - Mutual Funds.

  • ELSS Mutual Funds help you to grow money: Since ELSS mutual fund invests in equity related instruments, these schemes would help you to grow your money when the stock market grows over a period of time.
  • Save Tax u/s 80C up to Rs 1.5 Lakh: By investment in ELSS mutual funds, you are eligible for tax exemption up to Rs 1.5 Lakh u/s 80C. If you have not utilized 80C fully, this is a good opportunity to invest in ELSS funds.
  • Lock-in period of 3 years: ELSS mutual funds come with lock-in period of 3 years. Generally, investors would get tempted to take out the money from any investment option as soon as they get some good returns. They would not wait for long term to enjoy long term benefits. Since ELSS MF’s come with a 3 year lock-in period, you are forced to keep your investment for a minimum of 3 years. This would help you to grow your money that considers market fluctuations.
  • ELSS Returns are Tax Free: If you notice, Very few options of the returns from Tax Saving Investment options other than PPF & Life Insurance Polices proceedings are tax free. NSC, Tax Saving Bank FD, Tax saving Post office TimeDeposit Scheme etc.

All these tax saving option returns are taxable based on individual tax slab. However, interest in Public Provident Fund is tax free, but that comes with a 15 year lock-in period (apart from certain exemptions to withdraw in between). The only tax saving investment option that provides tax free returns for short period is ELSS Mutual funds. Since ELSS mutual funds invest in equity related instruments, these are classified under equity funds. Any returns received from equity funds after 1 year is tax free, Hence ELSS funds which comes with a 3 year Lock-in Period, dividends /returns/ Capital Gains from such funds are also tax free.


Other Income Tax Deduction To Save Tax Under Different Section:-

  • U/S 24 of Income Tax:- Home Loan Interest (Maximum Limit: 2 Lacs)
  • U/S 80-D of Income Tax:-Health Insurance Premium (Maximum Limit: 55,000/-)
  • U/S 80-E of Income Tax:-Education Loan Interest (No Limit)
  • U/S 80-CCD of Income Tax:-National Pension Scheme:- NPS (Maximum Limit: 50,000/-)