Have you planned your tax savings to get maximum benefits?

We are in last quarter of the financial year 2022-23 which is popularly known as JFM Quarter (January-February-March). JFM quarter is the one quarter when we need to complete our tax planning/ savings else we will have TDS on salary income/ or may have to pay higher taxes due to non-planning.

As you may be knowing, the investments made for the financial year by 31st March every year under different sections of Income Tax Act 1961 helps the tax payers reduce their tax obligation as they can claim several deductions from their gross taxable income. 

In this post, we will discuss about one such tax saving option under Section 80C – ELSS or ELSS mutual funds.

Tax savings under Section 80C

Under Section 80C of Income Tax Act 1961, one can save up to Rs 46,800 (if you are in the highest tax category) in taxes in a financial year by investing up to Rs 150,000 in 80C schemes. Apart from tax saving mutual funds, following schemes also quality under the above Section. 

  • Government small savings schemes like Voluntary Provident Fund (VPF), Public Provident Fund (PPF), Employee Provident (EPF), National Savings Certificate (NSC), Senior Citizens Savings Schemes (applicable to senior citizens) and Sukanya Samriddhi Yojana (applicable to parents of girl children). 
  • 5 Year tax saver bank fixed deposits.  
  • Life insurance plans – Traditional (e.g. endowment, money back, term plans) and unit linked plans (ULIPs).
  • In addition to the above, the tax payers can also claim the principal component of Home Loan EMIs and tuition fees paid for children’s education, during the financial year. 

Why invest in ELSS?

Mutual fund schemes offered under ELSS category is one of the most popular and best tax saving options under Section 80C of the Income Tax Act 1961 provided the investors can take high risk and is looking for long term wealth creation. 

For example – Rs 1 Lakh invested in NIFTY TRI 5 years back would now be Rs 1.80 Lakhs. NIFTY 50 TRI has given over 12.5% annualized return which is much higher than any other tax saving option under Section 80C (data as on 9th Feb 2023 – source- www.advisorkhoj.com). 

Since ELSS mutual fund investment portfolio is invested in equities, the historical data of equities show that it is the best performing asset class over the long investment tenures. ELSS mutual funds is also the most liquid investment option as it has only 3 years of lock-in period.

ELSS or tax saving mutual funds is also the most tax efficient investments as long term capital gains of up to Rs 100,000 in a financial year is tax exempt from taxes and thereafter, taxed at only 10% (plus applicable surcharge and cess). 

As a citizen of this country, paying taxes is not only our legal obligation but also important in terms of contributing to nation building. Saving taxes, is not only beneficial for your financial planning; you can also plan for your future goals like retirement, wealth creation and children’s education, etc. Invest in mutual funds and achieve the dual objectives – tax savings as well as wealth creation.