An Equity Linked Savings Scheme, aka ELSS mutual funds is a popular tax saving investment scheme. But what makes ELSS so popular? Let’s find out!
Equity Linked Savings schemes are very different to regular mutual fund investments.. Investing in ELSS mutual funds has the advantage of tax deductions unlike other mutual funds. These are the only mutual funds which qualify for deductions under Section 80C of the Income Tax Act of 1961.
Under this scheme, an investment upto Rs.1,50,000 is eligible for deduction from taxable income per financial year. So assume you have a total taxable income of Rs.10 lakhs in a particular financial year. If you invest 1.5 Lakh rupees in an ELSS fund then you will be liable to pay tax only on the remainder 8.5 lakhs.
So if you were paying a tax of 20% on 10 lakhs that would equal to Rs.2 lakhs tax.
But now, your total tax to be paid = 20% on 8.5 lakhs which equals Rs.1.70 lakhs.
Total Tax saved = Rs.30,000 per year.