Retirement planning and tax saving are two primary investment objectives of most investors. Investment options which offer tax benefits and an opportunity to create wealth are always a favorite of the investing community. The Government of India, under Section 80C of the Income Tax Act, provides a list of investments / expenditures which offer tax deductions to people. Here is the list:
1. Life insurance policy premium
|2. Sum paid under a contract for a deferred annuity|
|3. Sum deducted from salary payable to Government servant for securing deferred annuity or making provision for his wife/children|
|4. Contributions made under Employees’ Provident Fund Scheme|
5. Contribution to Public Provident Fund Account / any recognised provident fund
|6. Contribution to an approved superannuation fund|
7. Subscription to any notified security or notified deposit scheme of the Central Government like Sukanya Samriddhi Account Scheme.
|8. Subscription to National Savings Certificates (VIII Issue)|
|9. Contribution for participation in unit-linked Insurance Plan of UTI|
|10. Contribution to notified unit-linked insurance plan of LIC Mutual Fund|
|11. Subscription to notified deposit scheme or notified pension fund set up by National Housing Bank|
|12. Tuition fees (excluding development fees, donations, etc.) for full time education of any 2 of his/her children|
|13. Certain payments for purchase/construction of residential house property|
|14. Sum paid towards notified annuity plan of LIC|
|15. Subscription to any units of any notified [u/s 10(23D)] Mutual Fund or the UTI (Equity Linked Saving Scheme, 2005)|
|16. Contribution to any pension fund set up by any mutual fund which is referred to in section 10(23D) or by the UTI (UTI Retirement Benefit Pension Fund)|
|17. Subscription to equity shares or debentures forming part of any approved eligible issue of capital made by a public company or public financial institutions|
|18. Subscription to any units of any approved mutual fund referred to in section 10(23D)|
|19. Term deposits for a fixed period of not less than 5 years with a scheduled bank, and which is in accordance with a scheme 11 framed and notified.|
|20. Subscription to notified bonds issued by the NABARD.|
|21. Deposit in an account under the Senior Citizen Savings Scheme Rules, 2004|
|22. 5-year term deposit in an account under the Post Office Time Deposit Rules, 1981|
With such a long list of options, choosing the right investment can be a daunting task, to say the least. ELSS funds have been the most preferred option in recent years for the following reasons:
Save tax and earn high returns
ELSS funds offer a tax deduction of up to ₹150,000 under Section 80C of the Income Tax Act. These funds offer the EEE benefit – tax exemption, wealth accumulation and zero exit load. Further, these funds invest primarily in the equity market in a diversified manner, which gives investors a good opportunity to earn inflation-beating returns.
Lowest lock-in period
Of all the investment options available under Section 80C, ELSS funds offer the lowest lock-in period of only 3 years.
Also, these funds do not have a maximum investment period like PPF (15 years) or FD (10 years) has. The capital gain on these investments will be counted as Long-term Capital Gains (LTCG), which is tax-free. Post the lock-in period, the investor can choose to liquidate the investment or stay invested, based on the fund performance.
Here is a quick glimpse at how ELSS compares with the other commonly used tax-saving investments:
|Lock-in period||3 years||15 years||5 years||5 years||Till retirement|
|Tax on returns||No||No||Yes||Yes||Yes (partially)|
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