Waiting till the last date of tax filing or submission of investment proofs may not give us sufficient time to think through our investment decisions and at the same time puts undue pressure on our cash flows.
Most of us are aware about the instruments eligible for tax saving under Section 80C (with an increased exemption limit of ₹ 1.5 lacs) and under Sections 80CCE, 80D, 80E, 80G, 24(b), etc., of Income Tax Act, 1961 but a large proportion of us do not utilize the benefits fully.
Just by investing in options available under Sections 80C and 80D, you would be able to save tax upto the extent of ₹ 63,345/-*.
While you’re planning for your taxes, it is advisable to choose instruments that would not only save tax but would also provide the long term benefits in terms of savings or protection, in line with your financial goals.
You can diversify your portfolio across the host of options mentioned below:
| Tax Benefit Under Section | Maximum Investment Amount (in ₹) |
Certain Investment options eligible for exemption |
| 80C | 1,50,000 | Market-linked:
Fixed Income:
Others:
|
| 80D | 55,000 | Health Insurance: Mediclaim Insurance policy
Maximum tax amount saved: ₹ 16,995/- |
| 24(b) | 2,00,000 | Interest on Housing Loan for self-occupied property |
| 80G | Depends upon the list of Approved Funds / Charitable Institutions | Donate online: Reach out and make a difference. |
| Investment | Lock-in Period | Expected Returns | Tax Applicable |
| ELSS | 3 Years | 14 to 16% | Complete Tax Free |
| 5 Year Bank FD | 5 Years | 9.50% | Interest is Taxable |
| PPF | 15 Years | 8.50% | Complete Tax Free |
| NSC | 50 OR 10 Years | 8.50% | Interest is Taxable |
| Life Insurance | 5 Years | 0 to 6% | Complete Tax Free |
Bottom-line:
ELSS funds top our ranking for because of their tremendous potential, high liquidity and greater transparency. The ELSS category has given average returns of 17.8% in the past three years. The three-year lock-in period is the shortest for any Section 80C option.
ELSS, which is known as Equity Linked Savings Scheme (ELSS) is a diversified equity mutual fund, which has a majority of the corpus invested in equities. Since, it is an equity fund, returns from an ELSS fund, reflects returns from the equity markets and investing in this for a long-term and can give better returns when compared to other asset classes over the long-term.
ELSS proposes both dividend and growth options to the person investing in them. The growth option has the potential to generate higher returns; the Investors get a lump sum on the expiry of 3 years in the growth schemes. On the other hand, the dividend option provides a periodic income to the investor, whenever the dividend is declared by the fund, even during the lock-in period.
The best thing about ELSS is that it provides an opportunity to grow money and at the same time also qualifies for tax deduction of up to Rs.1.5 lakhs under section (u/s) 80C of the Indian Income Tax Act. This means that the investor has the upper hand when he goes for this scheme. What’s more, you can get some of the investment back if you opt for the dividend option. It is also very easy to get details of the fund’s portfolio.