“Taxes included” – Two words that are more disappointing to read than your bank balance at the end of the month. In fact, it’s partly because of these taxes that your bank balance looks that disappointing in the first place.
Now, there are some taxes that cannot be avoided. Like the ones that run longer than the items you get billed for at a restaurant or supermarket. But then there are some that you can, if not avoid, at least reduce the amount of. One such tax is the income tax that you pay.
The reason we are talking about this right now is because it’s that time of the year when you need to decide on how you plan to pay less tax to the government. Legally, of course.
For this, Section 80 (C) is the law that you need to familiarize yourself with. Section 80 (C) is that section under the Income Tax Act which enlists certain types of financial products/avenues as being tax-free. This means that the money invested in those products will not be taxed and you can invest upto Rs 1,50,000 in these products under this section.
One such product that you could consider under this is the ELSS Funds, or Equity-Linked Savings Schemes. ELSS are mutual funds that invest in the equity market and are also tax-free under section 80 (C). When you invest in an ELSS, what you get is a dual advantage. On one hand, it is an equity investment which means that you make money as it generates significant returns over the long-term. On the other hand, it is a tax-saving instrument and any amount invested in them will be exempt from taxes. So, essentially you get rewarded for saving by not being taxed.
However, do remember two things. First is that an ELSS has a three-year lock-in which means you can only withdraw the money after three years of investment. The second thing is that the tax-break is only for that financial year. So, if you invest say about Rs 1 lakh in an ELSS in September 2019, then the tax-break will be applicable only for the financial year ending in March 2020, even though the lock-in is for three years.
Most people use the PPF or the Public Provident Fund route to save taxes, which is a good option but the returns generated are decided by the government of the day. Also, it has a 15-year lock-in period. An ELSS, on the other hand, has the potential to generate good returns as it invests primarily in equities, provided you stick with the investment for a relatively longer period.
To sum it up – it is important to save money, but it is equally important to grow it. ELSS is a good avenue like that – both for saving and growing your money.