As the year-end proceeds, tax savers awaken- just like laggards during examination preparation. As a financial advisor, I would recommend not to, as tax planning should be considered as an annual practice rather than single quarter/ monthly process.
Nevertheless, hereby I present you with various financial savings/ investments instruments that are available u/s 80C including PPF, provident fund, life insurance premiums, NSC, ULIPs, 5-year locked-in bank FD, ELSS, Home loan re-payment, children’s tuition fees. Avenues like EPF are mandatory for salaried class, tuition fees and home loan are expenses, and insurance-related products are protection. Thus, among investments we have limited options with following characteristics:
In terms of long term returns and shortest investment period ELSS gains an edge over other investments as:
1. It is a well-diversified open-ended equity mutual fund investment with minimum of 80% assets invested in equities, qualifies u/s 80C of IT Act.
2. Both dividends and capital gains are tax-free as it has 3-year lock-in period.
3. Current limit u/s 80C is 1.5 lakh if invested in ELSS, can help you save Rs.20, 085, Rs. 35,535 and Rs. 50,985 with a tax effect of 13.39%, 23.69% and 33.99% respectively.
4. Moreover, you can churn the same investment after lock-in period to attain the tax benefit. Thus, ELSS forms as an appropriate tool for tax-savings, long-term wealth creation and investment product.
Following ELSS are recommended based on qualitative and quantitative analysis-
Quality ELSS funds has offered higher risk-adjusted returns over their comparative counterparts over long-term, mainly because of difference in asset allocation and distribution within market capitalization. Nevertheless, it is recommended to invest in both ELSS and diversified open-ended as latter has the flexibility built-in.
Wishing you all- Happy Tax Saving!
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