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Smart Way to Save Tax

Section 80C at a Glance

One of the key sections under which individuals can save tax is the Section 80/C of the Indian Income Tax Act. Under this section, investments up to `. 1,50,000 per annum are eligible for deduction from your taxable income. One should plan to utilize this section to the fullest by investing in some of the instruments shown alongside. Of course, the ideal tax saving investments depends upon factors such as your financial needs and goals, your risk appetite, etc.

Introduction to Equity Linked Savings Scheme (ELSS)

ELSS is a dedicated mutual fund scheme that allows investors to save tax. It also provides an opportunity for long term capital appreciation. An ELSS fund manager invests in a diversified portfolio, predominantly consisting of equity and equity related instruments that carry high-risk and have the potential to deliver high-returns.
Since it is an equity fund, the returns from this scheme are market determined.

Features of ELSS Funds

1. Tax-saving
2. Three-year lock-in period
3. Can be held even after the completion of three years
4. Offers dividend as well as growth options
5. Tax Saving instrument

Tax Treatment

The returns from an ELSS fund are tax free in your hands. The long term capital gains from an ELSS are tax free as well. This is because no tax is levied on equities that are held for more than a year.
Since an ELSS falls under section 80C, you can claim up to Rs. 1, 00,000 from your investment as a deduction from your gross total income.

Advantages of ELSS over other tax saving schemes

· Lower Lock-in Period: An ELSS has a lower lock-in period as compared to other tax saving instruments. I.e. while a Tax Saving Fixed Deposit needs to be locked in for five years and a NCS for six years, an ELSS has a lock-in period of only three years. PPF investments have the highest lock-in period of 15 years.

· Opportunity for Long Term Capital Gains: Since an ELSS fund invests in equities, and is dynamically managed by a professional fund manager, it has the potential to provide long term capital gains compared to other passively managed asset classes.

· Systematic Savings: You no longer have to worry about making hasty last-minute lump-sum investments for saving tax. One can plan effectively and invest in ELSS through the SIP (Systematic Investments Plans) route.


One needs to bear in mind that the returns of the ELSS schemes are determined by the performance of the equity market.