Jan 19, 2017 3 min read

The 3 Ways You Save Tax with ELSS Mutual Funds

If you are in doubt about investing in ELSS Funds and want to know its benefits prior to investing, then this blog is a must read for you.
Are you looking for a worthwhile investment to help you save on taxes as well? If yes, then ELSS is the best option available for you. By providing exemption up to Rs.1.5 lac on the taxable income, it helps in reducing the tax liability of the investor. Apart from offering this exemption, equity linked saving scheme provides some other benefits to the investors as well. So let us know the three ways in which one can save taxes by investing in the ELSS Mutual Funds.

Everyone is well aware of the basic definition of ELSS Funds which states that ELSS is an equity-linked saving scheme which falls under the equity asset category. The investments are made for a longer duration with a lock-in period of three years. Being an open-ended scheme, it offers the feasibility of easy redemption once the lock-in period matures. Being a diversified equity plan, it invests the funds in the diversified sectors and across various caps to avail the benefits of minimised risk for earning capital appreciation. The objective of ELSS is enhancing capital worth by equity investments and providing tax saving benefits under section 80C. As far as the tax benefits are concerned one can save on taxes with ELSS Mutual Fund schemes in the following three ways:

  1. Tax Deduction up to 1.5 Lakh Under Section 80C :- As per the provisions of Section 80C of Income Tax Act, every equity investment made for a period of three years or more, i.e., long-term investments in equity stocks are entitled to avail tax exemption up to 1.5 lakh from the taxable income. The ELSS funds are considered to be the most suitable investment strategy which is primarily designed to avail this benefit. With three years lock-in and investment in equity stocks, it makes the investors eligible to claim the tax exemption. This is the first and foremost way an investor can save taxes by investing in the Equity Linked Savings Schemes.
  2. Earn Tax-Free Dividends or Returns :- Apart from claiming tax exemption under Section 80C, the earning in the form of dividends or returns are further exempted from income tax. Yes, you heard that right! Your equity investments in the ELSS funds that offer extremely greater returns over a period of time are exempted from income tax. Thus, you make a tax-free income from these schemes which helps in attaining financial stability without suffering from the burden of paying taxes on the same.
  3. Non-Taxable Capital Gain :- Once the lock-in period expires, ELSS investments can be redeemed whenever the investor requires. On redeeming, the fund's investor earns a considerable profit which is considered as the capital gain on ELSS investments. This capital gain is also exempted under Income Tax Act. Accordingly, the investors earn the profits on selling their funds which are fully enjoyed by them without any liability towards paying taxes.

ELSS Funds fall under the EEE, i.e., Exempt-Exempt-Exempt Model under the tax regime of India and thus offer the tax benefits in three different ways. With this, it overcomes all its alternatives like fixed deposits, PPF, etc. Hence, it is always beneficial for every investor to park the hard-earned money in the ELSS schemes online or offline and gain the dual benefits of capital appreciation and tax savings. At present in the last quarter of the financial year 2016-2017, when everyone is looking for tax-saving options, a lumpsum investment in ELSS can be the most effective alternative for them.

At MySIPonline, we are focused on providing you with the online investing in mutual funds. Our financial experts are well versed with the concepts of all investment plans and suggest ELSS Funds for availing tax benefits under Section 80C. You must get associated with us to make a productive investment and build a worthwhile portfolio.

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