10 reasons Why we are obsessed about ELSS mutual funds

#ELSS is a clear winner amongst the Tax saving instruments in India 
Under section #80c of the Income tax act, there are many instruments one can opt for to save tax and create a wealth kitty. In the last post on Tax saving instruments under section 80C, I have listed down all the options of investments, insurance and expenditures. Here, I would like to elaborate on the specific product “Equity Linked savings scheme” Mutual Funds, and a basic comparison with the other options in terms of liquidity, lock-in, potential return etc.
Let me begin with the table of popular investment tools under 80C and their features.
Instrument
Maximum investment amount
Lock-in
Potential return
Actual tax benefits
#PPF
Rs. 1,50,000
15 years.
8-9% per annum, compound interest
Triple exemption benefit
Sukanya Samrudhi Yojana
Rs. 1,50,000
Only for daughters, the lock in depends on the daughters age
8-9%, compound interest
Triple exemption benefit
NSC
Rs. 1,50,000
5 years
8-9% per annum, compound interest
Returns are taxed as per laws
#Tax saver Deposits
Rs. 1,50,000
5 years
7-9% per annum, compound interest
Returns are taxed as per laws
#ULIP
Rs. 1,50,000
10 years onwards.
As per equity market movement. After deducting various charges
Triple exemption benefit
#ELSS mutual funds
Rs. 1,50,000
3 years
As per equity market movement.
Triple exemption benefit
#RGESS
Rs. 50,000
3 years
As per equity market movement.
50% tax relief on returns
1. The mutual fund has minimum #lock-in period of 3 years amongst the tax saving instruments.
2. Though it has a lock-in period, the open ended #ELSS funds, don’t have a maturity date.
3. The funds come with multiple options of growth, dividend option (dividend reinvestment is currently discouraged by the regulator in recent times, hence getting discontinued for the new investment options, because of its complex nature of 3 year llock-in for every purchase)
4. The ELSS schemes enjoy triple tax exemption benefits on redemption
5. Unlike PPF, ULIP, ELSS mutual funds don’t carry an obligation of investment amounts, hence it could be an one time investment or repeat depending on investor’s wish.
6. Unlike insurance plan, investor can buy different plans basis his research and recommendations
7. Minimum investment is as low as Rs. 500/-
8. The dividend earnings are tax-free in the hands of the receivers
9. It can be held as long as the investor wants; hence, the potential of high returns of 12-15% can be easily achieved in long-term, 5-7 years period.
10. The cost of investment is very low compared to the endowment insurance products, which doesn’t reflect  too much as the returns on the investment over a long term compensate well beyond the cost implications and inflation.
A hypothetical return graph of tax saving instruments over 3, 5, 7.10 year period
initial investment
3 YEARS
5 YEARS
7 YEARS
10 YEARS
PPF
1,00,000
130864
156568
187320
245135
NSC
1,00,000
127023
148984
174742
221964
ELSS
1,00,000
156394
210718
283911
444021
Assuming a 15% return on ELSS for the period
Top 5 #ELSS Mutual funds for reference purpose –
Scheme name
1 year
2years  
3 years
5 years
ICICI Pru RIGHT Fund (G)
10.9
7.2
24.4
21.2
Axis Long Term Equity Fund (G)
8.8
9.2
26.5
21.0
Reliance Tax Saver (ELSS) (G)
13.9
6.2
29.9
20.4
DSP-BRTax Saver Fund (G)
20.1
12.7
25.5
19.7
Birla Sun Life Tax Plan (G)
12.6
12.3
24.5
18.1
Suggestion for the young investors would be to buy ELSS fund, and treat it like  a PPF account, invest regularly, preferably through SIP, for 15 years and stay invested through the term. You will end up saving a big amount for yourself. 🙂 Happy investing. Happy Saving!

With the new hike in salary and the yearly bonus, plan tax saving before the Indian festivities blow your pockets

#classroom

Tax saving instruments and avenue especially for salaried individuals

We are almost halfway through this financial year 2016-17, however, many of us has got the revised paycheques with increment and bonus only in July/ August. The accounts team have given reminders for tax declaration forms. Let us quickly look at the lists of investment options where we can save some tax as well as utilise the fund in building wealth and help good cause.
Tax saving investments can be divided in 4 parts – 1. #Investments  2. #Insurance 3. Expenses 4. #Donations and social causes. In this post I intend to only identify the areas of investments. The next post will elaborate on the best ways to manage tax savings.
Tax savings instruments are introduced by government to promote savings practices, participating in the overall economy growth, encourage donation and charities for good causes and also rewarding investing in environmental-social sectors. It is not to be used as tax evasion tool in any form.
In the Income Tax act of India act, section 80C to 80U covers the tax exemption areas.
Tax saving eligible investments options

Categories
Details
Lock-in period
Minimum and maximum investment per year
Other benefits
Tax benefits
EPF
The amount is deducted from the salary by the employer. Employer also for makes equal contribution to the fund. This is a compulsory contribution.
As per new laws, one need to mandatorily keep the fund until 58 years of age
Minimum if 12% of Basic and DA. Benefit upto Rs. 1,50,000 investment per year
Employee can avail loan benefits and partial withdrawal allowed on resigning job. This account is transferable on job change
Maturity amount is complete tax free above 5 years
VPF
Voluntary Provident Fund, can be opted by an employee, carries same interest rate as
EPF
The lower limit not specified, however, upper limit is at 1,50,000
Loan facility/ partial withdrawal facility available
Tax free on maturity
PPF
Long term saving scheme by banks, return over 8% annually
15 years
Minimum Rs. 500 a year and maximum Rs. 1,50,000
Enjoys triple tax benefit. Partial withdrawal allowed 6th year onwards
Enjoys triple tax exemption benefit.
NSC
Eligible for deduction in the year they are purchased.
5 years, 10 years
The interest earned is non-taxable except last year
The interest earned in the last year is taxable.
Sukanya samridhi Yojana
Special saving scheme promoting development of girl child, enjoys higher interst rate than PPF
Until daughter turns 18 years
Minimum investment of Rs. 1000 year, upto 1,50,000
Enjoys triple tax exemption benefit. No tax on interest earned
Enjoys triple tax exemption benefit.
Tax Saving Fixed deposits
Eligible for deduction n the year purchased, banks and post office have this facility
5 years
Maximum Rs. 1,50,000
Interest earned is taxable on maturity
Senior citizen savings scheme
Deposit schemes in banks for senior citizens
Also enjoys higher interest rate
Insurance/ annuity plans (80CCC)
Premium paid for deffered annuity plans, life insurance schemes
NA
The upper limit is at 1,50,000
Enjoys triple tax exemption benefit
ELSS
Mutual Fund scheme, with 3 year lock-in period
3 year lock –in period
Minimum 5,000 Maximum investment 1,50,000 per year
Enjoys triple tax exemption benefit
 Rs. 1,50,000
Contribution towards pension account 80CCD(1)
Maximum deduction allowed is 10% of salary, and 10% of gross income for self-employed,
limit – Rs. 1,50,000
 Upto Rs. 1,50,000
Self contribution – Pension Fund/ Atal pension Yojana- 80CCD(1B)
Towards NPS/ Atal Pension Yojana
Deduction is allowed on contribution up to Rs 50,000. (This is additional to the available 1,50,000 limit)
 Rs. 50,000
Employer’s contribution -Section 80CCD(2)
Deduction is allowed for employer’s contribution to employee’s pension account up to 10% of the salary of the employee.
There is no monetary ceiling on this deduction.
 Upto 10% of employee’s salary
Equity Savings scheme 80CCG
A 50% deduction on tax on the investment. Person with salary less than 12 lakh
Rs. 50,000 is the upper limit
 50% deduction on the investment year

Other earnings eligible for tax saving
Categories
Details
Benefit
Interest earned from savings account
Tax savings claimed can be made on interest earned on savings account
Exemption upto Rs. 10,000 per year
#classroomseries

Expenses eligible for tax exemptions (Insurance and expenses) 
Categories
Details
Benefit
Life Insurance premium
Premium paid is eligible for tax benefit (for self, spouse, child)
valid on insurance policies if the premium is less than 10% of sum assured
Premium paid for medical insurance
Benefit upto 15,000 for self, spouse and children. Can be upto 20,000 if self/spouse is above 60 years
Additional deduction for 15,000 for parents and 20,000 if parents are above 60 years
Medical expenditure on handicap relative (80DD)
Expense on treatment, maintenance, rehabilitation and care
For 40-80% disability, fixed deduction of 50,000
Severe disability over 80%  – 1,00,000
Medical expense of self/ dependant (80DDB)
For the diseases specified in Rule 11DD. A certificate in form 10 I is to be furnished by the taxpayer from any Registered Doctor.
The maximum amount of deduction allowed from gross total income on condition that no medical reimbursement is received from any insurance company or employer for this amount
Person suffering from physical disability (80U)
Individual who suffers from a physical disability (including blindness) or mental retardation
Deduction of Rs. 50,000/-
Tuition fee
For children of the tax payer, school, college, university or any other institute within India
Capped at Rs. 1,50,000
Home loan
Principal repayment of home loan
Capped at Rs. 1,50,000
Home loan interest payment (80EE)
First time home buyers can avail this facility for self-occupied property 
The value of the house should be less than 50 lakhs and loan amount is less than 35 lakh. This is over and above the 2,00,000 limit
Stamp duty and registration for home buyers
Allowed under 80 C
Capped at Rs. 1,50,000
Deduction on house rent (80 GG)
This is available in case no HRA is attached in the salary structure and  not allotted accommodation by the employer
Maximum of Rs. 60,000 per annum can be claimed
Education loan for higher studies (80E)
Interest on the loan is eligible for tax benefit, can be upto 8 years or the interest payment completed whichever is earlier
Capped at Rs. 1,50,000
Social causes and donations
Categories
Details
Benefit
Donation towards social causes (80G)
Deduction up to either 100% or 50% with or without restriction as provided in Sec. 80G. click here for details
Donation over 10,000 cannot be by cash
Deductions on Contribution by Individuals to Political Parties (80GGC)
Political party registered under section 29A of the Representation of the People Act.
Cash contribution not allowed
 (80RRB)
Deductions on Income by way of Royalty of a Patent
up to Rs. 3 lakhs
#classroomseries
information used/referred from bankbazaar, cleartax, taxguru etc.
error

Found the information useful? Please spread the word :)

Latest post alert
Pinterest
fb-share-icon
LinkedIn
Share