Why Tax Saving is Not a Headache for You Anymore

Come December and everyone has already started thinking about tax and started to think abouttax saving on their hard earned money. Effective financial management will lead to tax savings and higher return on investment.Though tax payment is fundamental duty of democracy, but every tax payer has right to save tax by investing money

No one would like to pay thousands of rupees to Government while they can save money for better reasons. The reason behind to this is why not saved the tax money for their retirement funds?

Yes, up to Rs.46, 350/- in a single year!

For tax savings purpose different Alternate Investment Plans are available like NSC, Bank Fixed Deposit, PPF, retirement benefit plans, various mutual fund tax saving schemes, are available and above allyou have scheme of ELSS viz. Equity Linked Savings Scheme. ELSS is a type of diversified equity mutual fund, which qualifies for tax exemption under section 80C of the Income Tax Act.It is a scheme where you can save your tax as well as grow your investments!

So how does it work? Well, the calculation is like this:

If you invest up to Rs 1,50,000 in an ELSS and you fall into the 30% tax bracket, you can easily save up to (150000 x 30% + 3% Cess =) Rs 46,350!

What’s more is, if you invest Rs 1,50,000 in any ELSS with a CAGR of 15%, you would potentially reap over Rs 3 lakhs in the next 5-6 years and double that in the next 10 years.

In comparison to that, an FD and a PPF would lead you to just Rs 2,25,000 and Rs 2,20,000 in the first 5 years.

No wonder mutual funds are the favourite of thousands of people in India.And nevertheless, for the high tax payers, ELSS is the best option no doubt.

To understand ELSS more, let us understand in detail.

Tax Efficient:

When we compare with other instruments, Mutual Fund-ELSS is better in earning side. Because in other instruments return on investment is less than Mutual Fund as well as tax is levied on return on investments.

Example: If you invest your amount in Bank fixed deposit, NSC,PPF than earning from investmentis taxable while in MF ELSS, Dividend or long term gain is tax free.

Lock – In Period:

Mutual Fund ELSS has a shorter lock-in period, that’s why it is better than other tax savings instruments. It has only 3years lock in Period while bank fixed deposit, NSC has a 5years and more period.

Efficient Fund Management:

Mutual Fund is managed by professionals with sound knowledge about fund management. That’s why it gives better returns than fixed instruments.

Although investing in a mutual fund is risky but if you invest in the RIGHT mutual fund, you would get higher gain than you can probably expect from a fixed deposit, PPF account or savings certificate.

Capital Appreciation:

Like other equity mutual fund schemes, these mutual funds too are optimized for highest returns possible.Just start a SIP in the right fund and rest assured that you grow your wealth over long term even without any significant effort on your part. You can grow your money in a matter of 3 to 5 years considering the market is favourable, of course.