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How do you save tax through ELSS?

An equity-linked saving scheme (ELSS) is a kind of equity mutual fund that invests 80 per cent of its assets in equity and its related instruments. ELSS usually comes with a lock-in period of 3 years. ELSS qualifies for tax exemption allowing a maximum exclusion of INR 1.5 lakh under section 80C of Income Tax Act. ELSS also provides the avenue of delivering higher returns.

What are the pros of investing in ELSS?

ELSS offers a host of benefits, making it the most viable tax saving form of investment:

  • The initial investment is low, i.e. INR 500. This makes it a better option than fixed deposits
  • ELSS provides tax exemptions under section 80C of Income Tax Act. Those who invest up to INR 1.5 lakh can save tax. If it falls in the tax bracket of 30 per cent, you can save up to INR 45,000
  • It instils a sense of discipline as well when it comes to investment. ELSS is a step towards investment and tax planning. The monthly investments provide compounding returns that maximise the returns in the long run
  • ELSS has the shortest lock-in period of 3 years
  • The ELSS returns are high enough to beat inflation and are generally around 14 to 16 per cent
  • Lastly, ELSS returns are also tax-free

Hence, ELSS is the ideal investment tool when it comes to saving taxes.  

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