Equity Linked Savings Schemes ( ELSS )

Investors are always Confused if they should invest to generate returns or to save taxes? The answer to this is rather simple, you could do both. There are various sections provided under Income Tax Act, 1961 where investment to save tax can be done, one such section is Section 80C of Income Tax Act, 1961.

What is Section 80C ?
In order to encourage savings, the government gives tax breaks on certain financial products under Section 80C of Income Tax Act.
    » The deduction under section 80C is from your Gross Total Income
    » The benefit is available to an Individual or a HUF
    » It is available to every Individual, irrespective of his or her income level
    » The limit for current financial year ( i.e. 2015 – 16 ) Rs.1,50,000/-

Comparison of risk & returns of various options under section 80C:

Instruments	Lock in Period ( Yrs )	Returns	Min Investment	Tax Treatment
Public Provident Fund	15	8.50%	Rs.500	Interest Tax Free
National Savings Cert	5 & 10	8.50%	No Limit	Interest Income taxable
Bank Fixed Deposits	5	8.40%	Rs. 10,000	Interest Income Taxable
ELSS	3	Market Linked	Rs.500	Rtns & Div Tax Free
ULIP	5	Market Linked	Rs.10,000	Rtns & Div Tax Free

Tax Planning Should not only be aimed at saving taxes but also to aid your investments to help you achieve your financial goals. While there are many schemes that are offered to save taxes, ELSS can also be used to save tax as well as for wealth generation as it invests in Equities to ensure the desired term returns.

Equity Linked Savings Scheme ( ELSS ) was floated as per the ELSS guidelines issued by CBDT under Section 80C of the Income Tax Act 1961 to encourage investments in equities by providing tax rebate. The amount , up to Rs.1.50 lacs ( for current FY ), if invested in ELSS is exempted from tax. Investors who invest in ELSS are investing in scheme where minimum 80% of the amount can be in equities and equity related securities. Therefore, it is par with any diversified equity fund. ELSS investment come with a three years lock in period where the long term capital gain and dividends are tax free. The lock in period is only three years making it the option with the shortest lock in period in tax saving options.

Benefits of ELSS ( Mutual Fund )
Save Tax: By Investing Rs.1.50 Lakhs in ELSS you are eligible for Tax Exemption under section 80C

Lowest Lock in Period:
ELSS come with lock in period of 3 years.

Tax Free Return & Dividend:
The only Tax Investment Option that provides Tax Free Returns for short period in ELSS Mutual Funds.

Growth of Equity:
Since as ELSS Mutual Fund Invests in Equity Related Instruments, these schemes would help you to grow your money when stock market grows over as period of time.