Why ELSS funds are your best bet at saving taxes

Saving taxes is like doing an assignment for school. No matter how much you read up on it through the year, the final investments will undoubtedly be made in the last three months before the 31st March deadline.

When you are under pressure to save the maximum amount you can by investing in options that also give you the maximum return, it can be a tad hard to crunch all those numbers. Unless you are a distant relative of John Nash!

So, if there’s a last minute investment choice that you have to make, then equity-linked saving schemes (ELSS) make a lot of sense. Of course there are other options like PPF (Public Provident Fund), NSC, fixed deposits and the likes, but

ELSS funds

are definitely the best of the best. Here’s why:

Low lock-in period
All

tax savings

options come with a lock in period. With the PPF, it is fifteen years and the provision of making partial withdrawals after the first seven years. The NSC has a lock in period of eight to ten years.

ELSS

funds have the shortest lock in period of 3 years across the spectrum of options available under section 80C.

Tax exemption under section 80C
This is the major reason why any of us make tax investments in the first place. The law states that a taxpayer can avail deductions up to INR 1.5 lakhs under this section, and ELSS funds are a great way of availing this tax deduction. Depending on the income tax bracket applicable to you, an investment of INR 1.5 lakhs in an ELSS can save you a maximum of INR 46, 350 in taxes if you are in the 30% bracket.

Benefit from equity
ELSS is a great way for first-time investors to test the stock market waters. The three-year lock in period helps you weather the volatility associated with the stock market, and with a buy and hold strategy you can maximise your returns in a short span of time.

Tax-free gains
The returns from ELSS investments are tax free. Even if you were to sell your equity mutual funds after the 3 year lock in, the gains from the sale would be completely tax free under the current laws.

No fixed maturity date
Even after the mandatory lock in period of three years is over, you can continue to invest in your ELSS fund for as long as you like. This is just one of the ways in which ELSS is a better investment than other tax saving instruments.

(This article was produced by ClearTax for TimesOfIndia.com)