If at all there
was a poll among people on what they consider the most unpleasant of tasks in
their lives, paying taxes may well rank among the top on the list! Yes, when
earning money is such a difficult task, parting with a portion of it in the
form of tax becomes even more painful. But alas, you do not have an option but
to pay up your taxes as a responsible and dutiful citizen. Staying on the right
side of the law is not only logical but also a smart approach, isn’t it? But is
it all just gloom for you, the taxpayer? Thankfully not. There are silver
linings in the form of legitimate tax benefits that you can enjoy to minimize your
tax burden even if not fully eliminate it. Read on to know more.
Section 80C of Income Tax Act, 1961
income tax laws provide various exemptions which you can enjoy subject to the specified
conditions. The most popular among those are the ones available under section
80C of the Income Tax Act. Quite simply, you may deduct from your taxable
income, the eligible investments and expenses mentioned under this section. For
example, if your gross taxable income is Rs 15 lakh, by availing the 80C
exemption, you may simply bring it down to Rs 13.50 lakh. You save tax on the
difference i.e. Rs 1.50 lakh, which could amount to as much as Rs 46,350*. This
limit under section 80C was earlier at a lower level of Rs.1 lakh. But Finance
Act (No. 2) 2014 increased the limit to Rs.1.50 lakh. This effectively means
even more tax saving for you than in the earlier year.
are calculated at slab rate of 30.90% (for individual earning less than
Rs.1Crore), under section 80C of Income Tax Act, 1961. Tax benefits are subject
to actual amount of investment, applicable tax rate and conditions stated u/s
80C of the Income Tax Act, 1961.
fees for two children and home loan principal repayment are the eligible
expenses, some of the major avenues to save tax by investing are:
1. ELSS (whose
full form is ‘Equity Linked Savings Schemes) of mutual funds
2. Specified bank
4. Postal savings
like National Savings Certificates (NSC), Public Provident Fund (PPF), Senior
Citizens Savings Schemes etc.
invest your money in equity (shares and similar instruments available in the
financial markets) under the supervision of expert fund managers to fetch you reasonable
returns. It is common knowledge that equity aims to provide the good return
potential in the long term in comparison with other investment avenues. So by
investing in ELSS, you could not only be saving tax but also enhancing your
ELSS, like any
other tax saving investment comes, with a lock-in period of 3 years during
which the investment cannot be encased.
Tax saving and
wealth creation are not the only attractions that ELSS offers. There are 5 significant
benefits that ELSS offers vis-à-vis other eligible investments under section
1. Shortest lock-in period: By investing
in ELSS, your money is locked in for just 3 years as compared to 5 to 15 years
in other comparable investments under this Section. This means, you need not
part with your money for too long to avail the tax benefit. Your money is
available for your use quite quickly even after earning you the tax breaks and
2. Invest and forget: A one-time
investment would suffice for availing this benefit in a year. There is no long
term commitment on your part to make continued payments for many years. But you
also have the option of making many small investments through the Systematic
Investment Plan (SIP) route over the full year if it suits you.
The power of
equity: As already mentioned, equities have been the wealth creators over longer
time periods. ELSS, by investing in equities, facilitates your partaking in
this wealth creation potential. And as your money is left undisturbed for a
minimum period of 3 years, these schemes can invest with a long term view facilitating
good investment results.
Flexibility: Like all mutual
fund schemes, ELSS lets you tailor your own investment program. You may invest
a single lump sum for the year or choose to invest small SIP instalments as per
your income pattern. You may also choose to receive your investment gains in
the form of periodical dividends or as a value appreciation at the time of
Tax savings all
the way: Investing in ELSS not just saves you tax on your income but also gives
you tax-free returns on the investment. Yes, irrespective of how you choose to
receive your investment gains (dividend or value appreciation), your returns
from ELSS are absolutely tax-free. Many competing products work in the EET
(Exempt, Exempt, Tax) model which means you pay tax at the exit stage even if the
investing and income stages are tax-free. But with ELSS, your investment is
exempt at all the three stages and you may well laugh your way to the bank.
Is ELSS for you?
If your income
is above the basic exemption limit and you want to save tax, ELSS could be for
you. No doubt equity investments by nature are subject to market movements, but
by being invested over these movements and by taking advantage of them through SIP,
you can smartly turn these market movements into a wealth creation opportunity.
It is not often
that you, as a tax payer, get to thumb your nose at the tax man. But strangely,
section 80C lets you do it. And ELSS offers you even more, much more than what
the tax man originally was willing to give you. So what are you waiting for?
Call your investment advisor now to plan to save tax.
To know more,
Mutual Fund investments are subject to market
risks, read all scheme related documents carefully.
should not be considered as 'investment advice'. We request the Reader to make
informed investment decisions and consult their financial advisors to determine
the financial implications with respect to investing in Mutual Funds. Investors
would be eligible for tax benefits as per the prevailing Income Tax laws.