ELSS is the only investment option that not only provides tax deductions under the provisions of Section 80C of the Income Tax Act, 1961 but also helps in wealth growth. The equity exposure of the ELSS funds gives you an opportunity to earn excellent returns on staying invested for at least five years.
What are the tax benefits in mutual funds?
Tax Benefits of Investing in Mutual Funds
| Nature of Profits / Income | Equity Funds Taxation |
|---|---|
| Short term capital gains | 15% + 4% cess = 15.60% |
| Long term capital gains | 10% + 4% cess = 10.40% (if the long term gain exceeds Rs 1 Lakh) |
| Dividend distribution tax | 10% + 12% surcharge + 4% cess = 11.648% |
Why is tax saving important?
One of the benefits of tax saving is that you can avail deductions for a variety of essential long-term purchases. For instance, there are tax saving deductions in the Income Tax Act for interest accrued on your home loan, your education loan as well as your savings account.
How do mutual funds save tax?
Keep these points in mind. Equity linked savings schemes or ELSS offer tax deduction under section 80C of the Income-Tax Act, for investments up to Rs 1.5 lakh in a financial year. You can invest via the SIP route or put in a lump sum amount.
What are the tax saving instruments?
Investment options under Sec 80C
| Investment | Returns | Lock-in Period |
|---|---|---|
| Public Provident Fund (PPF) | 7% to 8% | 15 years |
| National Savings Certificate | 7% to 8% | 5 years |
| National Pension System (NPS) | 12% to 14% | Till Retirement |
| ELSS Funds | 15% to 18% | 3 years |
How does investing in mutual funds help you save taxes?
Planning tax in a wise manner can allow you to save a significant amount of cash, which can be invested in gaining returns. Failing to plan taxes will make you lose a chunk of your hard-earned money. If the primary purpose of your investment is to save tax, then you can consider investing your money in Equity Linked Saving Scheme (ELSS).
Are there any tax saving mutual funds in India?
What are Tax Saving Mutual Funds? Tax saving mutual funds are just like any other mutual funds with an added tax-saving benefit. The special feature of this type of mutual fund is that the investments made in the tax-saving mutual funds are eligible for tax benefits under section 80C of the Indian Income Tax Act.
Do you have to pay tax on dividend in mutual funds?
There is no way of saving it and there is no need to worry about it. This is something that the dividend distributor got to pay. In case of mutual funds, it is the fund house and in case of stocks the business you invest in. You do not have to pay it and moreover your dividend income is tax-free. On this, you are saved from paying almost any taxes.
Is there lock in period for tax saving mutual funds?
Investments made in tax saving mutual funds come with a lock-in period of 3 years. Since ELSS’ are mutual funds in nature, investments made in these schemes are prone to market risks which can be either low, medium or high based on where the funds are invested.
