How to Save Tax with ELSS?
April 09, 2018
People who are smart with their personal finance use many methods to save taxes when filing the ITR. One of these is ELSS investments.
An Equity-Linked Savings Scheme (ELSS) allows you to save taxes under the Section 80C of the Income Tax Act with investments up to Rs. 1.5 lakhs. The only catch is that you have to agree to a lock-in period of 3 years.
What is an ELSS scheme?
An ELSS investment is a type of mutual funds investment scheme that offers the benefit of tax savings. Under this, your funds are invested equities and you are free to choose between growth and dividend option.
In the dividend option, you can earn regular dividends, but with the growth option, you can allow your fund manager to reinvest the money for investment “growth”.
The following are some of the main advantages of ELSS:
- The lock-in period which is 3 years is lower than most other mutual funds schemes.
- Earnings during the lock-in period are completely tax-free.
- It offers higher returns compared to other investments albeit with a certain level of risk
- There is no maximum investment amount
How to invest in ELSS? How is it better than other Investments?
The standard process for ELSS investment is akin to other mutual funds. All you have to do is complete the KYC process and pick a fund manager (mutual investment firm). You can easily make an investment online through any of the mutual funds websites.
ELSS has many advantages over other investments. For instance, PPF, which is a popular risk-free investment is available with a minimum of 15 years lock-in period. In ELSS, it’s only 3 years.
Even the National Pension Scheme (NPS) has its drawbacks. For instance, you must be a senior citizen to claim the benefits, i.e. reach age 60 or more. Plus, you are allowed to prematurely withdraw only 3 times during the term and that too only 25% of the amount tops.