You can save tax by investing up to Rs. 1.50 lakhs in ELSS (Equity Linked Savings Scheme), under section 80C of the income tax act. ELSS offer the option of saving tax. These funds invest in equities and investors can choose from either the dividend or growth options. You can invest any amount up to Rs. 1.50 lakhs in ELSS to save tax. These schemes give investors the opportunity to earn higher returns over the long run. Same is the case with all Mutual Funds, where no guarantee of any fixed returns.
Save Tax Using Mutual Funds
An investor can invest in an ELSS scheme just like the way he does in any other Mutual Fund Scheme. He can invest by filing the relevant form and writing a cheque, either through online fund house websites or online portals. He can also invest using SIP (Systematic Investment Plan) or STP (Systematic Transfer Plan).
Amongst all the tax saving schemes, ELSS has the shortest lock-in period of three years, while the PPF has a minimum lock-in period of 15 years; and allows only conditional withdrawal before that. The EPF is usually locked-in for the term of your employment. Other tax-saving products such as Tax-Saving Fixed Deposits, or the National Savings Certificate (NSC) are locked-in for five years or more. The National Pension Scheme (NPS) is locked in until your age of 60 and only allows conditional withdrawal.
If you opt for the dividend option, you can get intermittent cash flows as well in ELSS schemes. Finally, in an ELSS Scheme, you don’t have to pay any tax on dividend or when you redeem the units.
Investors have to option to continue to hold the Mutual Funds units after three years or redeem them. Financial planners recommend considering ELSS as part of equity allocation and continuing to hold if it performs in line with investor’s expectations as it would help in meeting financial objectives.