It is going to be tax season very soon. Have you planned your taxesThe new financial year is about to begin in a few months and you have a short span of time to plan your finances effectively. This is where ELSS Mutual Funds come into the equation. Most experts would advise you to opt for ELSS. ELSS or Equity Linked Saving Schemes are Mutual Funds investment schemes that help you save on taxes.. This scheme offers an astounding combination of shorter lock-ins, market-linked returns and greater flexibility which makes it one of the top choices for investors.

ELSS Mutual Funds like any other scheme, invest in the stock market. The only difference between this and the other schemes is that an ELSS scheme comes with a three year lock-in period, which means you cannot sell your investments for three years from the date of purchase. In the case of ELSS SIP, every installment is locked in for a period of three years, which results in each installment having a different maturity date.

How does it help you save Tax?

Under Section 80C of the Income Tax Act, investments in ELSS upto a maximum of Rs. 1.5 Lakh per annum qualifies for a tax deduction. This essentially means that you can deduct the amount of money you invest in ELSS from your annual income, which in return reduces your taxable income, and thus your taxes.

Let’s use an example to understand this better. Rahul is a working professional with a taxable income of Rs. 12 lakh a year. This puts him in the 30% tax bracket. He decides to invest Rs. 1.5 lakh in an ELSS fund. Under 80C of the income tax act, this brings down his taxable income to Rs. 10.5 lakh and translates into a saving of Rs. 46,800* (31.2%% of Rs. 1.5 lakh)*.

That definitely is a significant amount of saving when it comes to taxes.

Why should one consider ELSS?

Under Section 80C, investing in other tax-saving mediums like Fixed Deposits(FD), Employment Provident Fund (EPF), Public Provident Fund (PPF), ELSS, qualify for almost the same income deductions. But ELSS has an edge over all the other investments.

1. Shortest Lock-in: ELSS has the shortest lock-in period of just three years out of all the other investments. Some of the other investments have a lock-in period of 5 years (FD) and 15 years (PPF).
2. Potentially Higher Returns: Other investments mostly offer returns in single-digits. ELSS has the potential to offer higher returns.
3. Ease of Investment: Investing in an ELSS is very simple. You can invest via a Systematic Investment Plan (SIP) or using a lumpsum amount. You can hold on to your shares after the maturity period of three years or sell them online at the click of a button. It takes a couple of days for the funds to credit in your account.

To avail Tax Benefits, ask your financial advisor and invest in ELSS today!