With return filing deadlines getting an extension, it is obvious that you might have got enough time to think about tax-saving. Your first thought would be to invest in ELSS, also known as Equity-Linked Savings Scheme. Tax saving should not only be a goal but a part of your mid-long term wealth creation. This means that while you are thinking about investing to save taxes, you should also know what purpose the investment is going to achieve. The below-listed pointers can help you make an informed decision.
As we mentioned above, your tax-saving exercise should be goal-driven. If you have a short-term objective, then there is not much use of the tax-saved as it will be used up soon. However, when it comes to the midterm or long-term goals tax-saving investments can play this dual role. Whether you think of investing in employee’s provident fund (EPF) or public provident fund (PPF), you need to keep in mind that many tax-saving securities come with a longer lock-in period, except ELSS funds. A lock-in period means you are not allowed to redeem your money before the lock-in period, even if there is an emergency.
However, when you invest in ELSS funds, the lock-in period is only 3 years. Hence, if required you can redeem the money after 3 years or you can keep investing in ELSS mutual funds for a long term and gain higher returns through the power of compounding.
When it comes to tax saving, there are a variety of financial securities that you can choose. As per Section 80C of the IT Act, 1961 a tax deduction of up to Rs 1.5 lac can be availed per annum. When it comes to ELSS tax saving mutual funds, you can save up to Rs 46,800 if you fall in the highest tax bracket.
Investing in ELSS funds lets you save more money by paying less taxes. As any seasoned investor might tell you, staying invested for the long term is always beneficial. Same goes with ELSS and tax saving. ELSS can be one of the best tools for you to create a sizeable corpus over the years. There are 2 reasons for this to be true.
- A minimum of 80% of ELSS tax saving funds invest in equity. Equity funds have a higher potential to give you good returns.
- Saving taxes through ELSS will have a significant impact and contribution to your wealth creation goals.
Hence, it is a smart decision to think about creating wealth along with saving taxes. Moreover, you can use ELSS tax savings to meet long term goals such as retirement planning or your children’s future planning. Investments that are done in the equity market for the long term are prone to factors such as market volatility and inflation. You also have the option to invest in ELSS funds via SIP (Systematic Investment Plan) or lump sum. Hence, depending on what is preferable to you, start planning about wealth creation along with tax savings today. Happy investing!