Investing is excellent all by itself! But you’ve got to admit – you add a tax-saving element to it, and it just gets 2x better and more appealing!
Today, we thought we’d talk a bit about how you can save tax by investing in mutual funds. Let’s do this question by question.
Tax-saving mutual funds are investment instruments that allow you to reduce your taxable income by up to ₹1.5 lakhs, under Section 80C of the Income Tax Act of India. These mutual funds are called Equity Linked Saving Schemes (ELSS), and all the best tax-saving mutual funds act and perform exactly like a regular mutual fund, but with the added and enticing benefit of tax saving.
Let’s assume you are earning ₹10 lakhs in a year, and invest ₹1.5 lakhs in an ELSS fund in that same year. In this case, when you are filing your income tax returns, you will be taxed on a total of only ₹8.5 lakhs, instead of the full 10 – effectively reducing the total tax being paid by you.
We know we’ve got your attention now – so let’s keep this momentum going!
What are the benefits of tax-saving mutual funds?
Tax-saving mutual funds or ELSS funds offer a number of benefits to the investor by reducing their total taxable income. But, in addition to providing tax deductions to investors, there are five key benefits that you can leverage if you are investing in tax-saving mutual funds –
These benefits make a solid case for the appeal of tax-saving mutual funds as regular investment instruments for the smart investor. The only real limitation to tax-saving mutual funds, however, is that you only get a tax break of up to ₹1.5 lakhs under Section 80C, and no more. So, you can cap your ELSS investments at ₹1.5 lakhs, but make other investments throughout the year to maximize your returns.
What are some popular tax-saving mutual funds in India today?
Here’s a list of the top 10 tax-saving mutual funds that are popular in India today –
Tax-saving mutual funds are an underrated investment tool in India. But they can be useful for tax-saving while also offering a number of important peripheral benefits to the investor. So, it is important to make sure that tax-saving mutual funds are a part of your financial portfolio so you can optimize your returns, and also safeguard your yearly earning potential!
Yes. You can invest up to ₹1.5 lakhs in tax-saving mutual funds under Section 80C of the Income Tax Act of India.
Equity Linked Saving Schemes (ELSS) are tax-saving schemes that allow you to invest in mutual funds that are primed for a tax deduction of up to ₹1.5 lakhs under Section 80C of the Income Tax Act of India.
Yes. Most tax-saving ELSS funds have a 3-year lock-in period.
Yes. SEBI is in charge of regulating the ELSS tax-saving mutual fund options in India.
Yes. Most tax-saving mutual funds offer the option of investing through SIPs.