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  • ELSS: Tax Havens and Benefits

    ELSS are otherwise known as Equity Linked Saving Schemes. These schemes are fast becoming a popular choice for not just creating a savings but also double as a viable form of investments that provide a profitable return. ELSS are a form of open ended mutual funds. The ELSS offers the added advantage of providing returns and offer an avenue for saving tax. The funds invested in by ELSS primarily revolve around equities and related equity products and these schemes usually come with lock-in periods of 3 years wherein the investor cannot access his funds thereby securing the savings. The tax benefits offered by Equity Linked Saving Schemes fall under the section 80C of the income tax act and offer tax exemptions of up to Rs 1.5 Lakhs

    Advantages of Investing in ELSS:

    There are a number of advantages provided by ELSS that make it a viable tax saving form of investment. Firstly the required initial investment about is low and starts from Rs 500. This makes it more affordable than a fixed deposit which requires a huge chunk of money to make a good return. The tax exemptions provided by ELSS fall under section 80C of the Indian Income Tax Act and people who invest up to Rs 1.5 Lakhs can save up on tax. If they fall in the tax bracket of 30% they can save up to Rs 45,000

    Not only does it provide tax savings it also instils a sense of discipline when it comes to investing. Monthly investing in ELSS provides an avenue for one to step up their investment and tax planning. The monthly investments provide compounding returns that enable one to maximise their returns over a period of time. These also have the shortest lock in period with only 3 years before one can access their funds and also provides a higher return than investments like fixed deposits. The returns are high enough to beat inflation and are usually around the range of 14% to 16%. The best part is that returns from ELSS funds are completely tax free

    How does Tax Saving in ELSS Work?

    To simplify matters, the below table will demonstrate how ELSS funds help save tax and how much tax it would save

    As we know, ELSS funds fall under Section 80C of the Income Tax Act and this act allows a maximum investment limit of Rs 1.5 Lakhs. Now even if a person falls under the maximum tax bracket of 30%, that person can save a maximum of Rs 45,000 on tax.

    The below table shows a person with a salary of Rs 7,50,000 p.a. and what their savings would be if they invested in ELSS funds as compared to having no investments at all.

    Parameters Tax after Investing in ELSS under Section 80C Without Investing in Tax Saving Investments under Section 80C
    Gross Total Income of the person Rs 7,50,000 Rs 7,50,000
    Tax Exemptions under section 80C Rs 1,50,000 0
    Total Income Rs 6,00,000 Rs 7,50,000
    Tax on Total Income Rs 45,000 Rs 75,000
    Amount of Tax Saved Rs 30,000 0

    Hence, a person can save up on tax by declaring their investments in ELSS and also enjoy tax free returns from the fund at the same time.

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