Those who pay the taxes will be familiar with this product called Equity-Linked saving schemes. If you are the person who is looking to save and invest to save the tax, ELSS could turn out to the best rewarding investment option. The ELSS funds have been superior to the other tax saving investment options.
If you invest in certain products like a life insurance policy, Public Provident Funds, or units of an ELSS scheme, you can get a tax deduction on your taxable income. Thus, ELSS is a type of Mutual Fund which has a lock-in period of 3 years along with the tax exemption under section 80C of the Income Tax Act.
How is ELSS better than other tax-saving instruments?
Here is a comparison of ELSS with other tax-saving investment options.
- Lock-in period: ELSS has a minimum lock-in period of 3 years when compared with the other tax-saving instruments.
- Returns: ELSS have the potential to generate good returns when compared with other instruments.
- Taxation: Like all other tax saving instruments, the amount invested in ELSS is tax-deductible under section 80C of the Income Tax Act and allows a maximum deduction of Rs 1,50,000. Unlike other tax-saving instruments, the returns generated through investment in ELSS and NPS are partially taxable and are not fully taxable. Capital gains on ELSS up to 1 lakh is exempted from tax.
- SIP option: In a few tax-saving instruments like FD and NSC, only a lump sum amount is acceptable. Whereas you can invest in ELSS through SIP(Systematic Investment Plan) which allows you to deposit a small amount at regular intervals (weekly, monthly, quarterly, yearly) which can be as low as Rs 500.
- Risk: ELSS will involve a higher amount of risk when compared with the other instruments because they are Equities are subjected to market fluctuations.