Why ELSS is a better option for saving taxes in comparison to PF, PPF and pension schemes

Equity-linked savings schemes offer shorter lock-in period and a possibility of higher returns, among other benefits compared to others.

FPJ Web DeskUpdated: Tuesday, November 29, 2022, 07:06 PM IST
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With a population of 130 crores, India has only eight crore tax payers, while efforts are underway to increase this number as the economy surges forward. But those eligible for paying taxes, have the option of saving as much as Rs 1.5 lakh, by investing in schemes designed specifically for this purpose. From Fixed Deposits, preferred by 95 per cent Indian households, to Provident Funds, Public Provident Funds, government schemes and Equity Linked Savings Schemes, there are multiple options to save taxes under section 80 C of the Income Tax Act.

What does it offer?

Equity Linked Savings Schemes, are mutual funds where equity-linked securities such as shares and debt instruments which provide payments based on stock market performance, constitute 65 per cent of the assets. You can become eligible for a tax rebate of up to Rs 1.5 lakh by investing in ELSS, and can also save more than Rs 46,000 a year, without any upper limit on how much one can invest. By investing in the tax-saving instrument, you can also generate lucrative returns as fixed income assets are also part of the corpus.

How does it gain an edge?

One key advantage of investing in ELSS is that the lock-in period, when investors can’t withdraw or sell assets, is lower than all other tax-saving instruments at three years. For retirement funds, this time span can extend till retirement, while for Unit Linked Insurance, it can be five years, which is the same as provident funds. As for public provident funds, the lock-in period goes up to 15 years.

Since ELSS becomes a short-term investment, gains above Rs 1 lakh on it are taxed at a 10 per cent rate, compared to 15 per cent for long-term investments. At the same time three years is only a minimum lock-in period, and investors can keep their money in ELSS even after that.

Benefits for investors across the board

Although the returns from ELSS aren’t fixed, the scheme offers 15 to 20 per cent returns, which is higher as compared to 7 to 10 per cent from other tax-saving investments.

Salaried persons can keep investing a portion of their monthly income into ELSS, since the mutual fund comes with a Systematic Investment Plan (SIP) option.

Since mutual funds are required to disclose information under SEBI norms, investors can rest assured thanks to transparency.

One way to make the most of ELSS and also be more secure in the market, investors can put their money in diverse schemes, which have exposure in different industries.

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