Section 80C of the Income Tax Act allows you to claim tax deductions upto 1.5 lakh per year. Usually January is the month when investors, especially the salaried employees, start thinking of saving taxes u/s 80C. This is because they need to submit investment proof’s to the office. However, tax planning as an exercise should begin much earlier in the financial year. Investors can use options of lumpsum, SIP or STP in equity linked savings scheme (ELSS) offered by Mutual Funds to save tax under Section 80C of the Income Tax Act.

1. What is a tax saving or ELSS scheme?How much can one invest in them?

Tax saving or ELSS schemes are products offered by Mutual Funds that invest in equities. An amount of upto 1.5 lakh can be invested in an ELSS in a financial year to save tax. Since these funds invest in equities, there is aprobability of earning superior returns than other tax saving products over the long run.




2. How does one invest in an ELSS scheme?

To be able to invest in a mutual fund scheme including an ELSS, the investor needs to be KYC compliant. There are various ways in which an investment can be made

Writing a cheque and submitting it with the form to the fund house
Online either through the website of the fund house OR third party portals.


It is always a better idea to use SIP or STP to invest, since this method is auto investment. Also, SIP allows the investor to avail the benefits of rupee cost averaging—more units at lower NAV and lesser units at higher NAV.




3. Do ELSS schemes have any advantage when compared with other schemes u/s 80 C?

Yes, ELSS schemes have advantages as compared with other schemes u/s 80C:

ELSS schemes have a lock-in period of only 3 years and offer a dividend option that can help increase cash flows.
Public Provident Fund (PPF) has a minimum lock-in of 15 years.Besides, it allows withdrawals only under certain conditions in the 15 year period.
Employee Provident Fund (EPF) is usually locked in as long as you are employed with the organisation that is deducting the amount.
National Savings Certificates (NSC) and Tax saving Fixed Deposits are some other tax savings products. However, they are locked in for a five year period and above.
National Pension Scheme (NPS) is locked in until the investor turns 60 years of age, and only allows conditional withdrawal.

4. What happens to the ELSS once the three year lock-in period is over?

The decision to continue holding investing or partly/fully redeeming the investments is left with the investor at the end of the 3 year lock-in period.Since ELSS invest in equities, it is recommended that it stays as a part of investors’ equity allocation. Thus, the investor should continue to hold them if it fulfils their overall financial goals.



DISCLAIMER:
The information in this document should not be construed as an investment advice or recommendation to any party or solicitation to adopt any investment strategy. The document gives features of Equity Linked Savings Scheme and other investment products which are eligible investment options for claiming deduction under section 80C of the Income-tax Act, 1961 is in summary form only and does not purport to be complete details. Investors / prospective investors are requested to refer to the product material related to each such investment option and contact their investment advisers. The Information regarding tax treatment provided in this document is as per current taxation laws and are available subject to relevant conditions. The investors should be aware that the relevant fiscal rules or their interpretation may change. As is the case with any investment, there can be no guarantee that the tax position or the proposed tax position prevailing at the time of an investment in the scheme / investment options will endure indefinitely.  In view of the individual nature of Tax implications, each investor is advised to consult his or her own professional tax adviser. The information in this document is obtained by Invesco Asset Management (India) Private Limited from the sources which it considers reliable. While utmost care has been exercised while preparing this document, Invesco Asset Management (India) Private Limited does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. The investors should before investing in the scheme(s) of Invesco Mutual Fund make his/their own investigation and seek appropriate professional advice.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.