Tax saving tips: Salaried persons

When the end of a financial year comes, the salaried people start to sweat at the very mention of the term ‘Income Tax’. You must be experiencing the same, as you face the challenge of paying the income tax and scout for various means to save your taxes.

The process of saving your tax can result in a complicated one if you do not plan it. Section 80C of the Income Tax Act of 1961 has provisions, which can help you to maximise your take-home income, through smart investing.

A variety of tax saving tools prevails, Public Provident Fund (PPF), Fixed Deposits with banks (FD), National Savings Certificate (NSC) and Equity Linked Savings Scheme (ELSS).

Professionally trained investment managers and consultants are present to help you figure out the best suitable instrument for saving your taxes as well.

Equity Linked Savings Scheme (ELSS)

These diversified mutual funds can fetch you tax benefits up to Rs. 1.5 lakhs, under Section 80C. ELSS funds in India come with a shorter lock-in period, as compared to other instruments of tax saving. ELSS is categorised as under.

• Growth Fund:

Simply put, the funds invested under this category will enable long-term wealth creation for the investor wherein the full value of the invested funds will be realized at the end of the redemption period. Thus, the profit is multiplied, given the appreciation of Net Asset Value (NAV). However, being prone to market risk, the growth option might not work in favour of

investors every time.

• Dividend Payout:

Here, the investors will get periodical benefits via dividends, which again, are tax-free in nature.

• Dividend Reinvestment:

Under this option, investors can reinvest the sum accumulated through receipt of dividends, which will in-turn add to their NAV. Thus, the profit or earning maximization works better under this option, coupled with good market scenario and performance of the mutual funds invested in.

Key advantages of ELSS

• Shortest lock-in period among all tax saving instruments under Section 80C
• Potential to garner compounded higher returns compared to other tax saving tools
• The upper limit of investing is not defined. (However, tax benefits up to Rs. 1.5 lakhs only can be availed as per the Section 80C of the Income Tax Act.)
• Dividends received are totally tax free in nature.
• ELSS serves as a shield to your investment during market volatility.
• Helps the beginners to gradually develop an investing discipline in equity mutual funds with long-term returns

ELSS serves as one of the most attractive investing options, keeping in mind the tax saving benefits linked to the scheme. Financial experts and investment professionals are always available to guide you and boost your investments through ELSS.

One should remember that investing early in ELSS would result in developing a financial discipline in you, thereby reaping the benefits of various other investment instruments to establish a financial cushion for your family and your future.

So, start investing now and optimize your investments, through ELSS!