tax saving schemes


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Tax Saving schemes

> Best tax saving scheme is ELSS (Equity Linked Saving Scheme)

You can save tax upto Rs. 46,350 per year (Includes applicable cess) by investing in ELSS funds subject to the following:

Individual and HUF can claim a deduction of upto Rs. 1.5 lakhs under the ELSS scheme during the FY 2016-17 as per provision of Section 80C of the Income Tax Act 1961. Tax saving will be proportionately reduced subject to the taxable income and investments.

Further, Investment in ELSS schemes is subject to lock in period of 3 years from the date of allotment of units. The tax benefits are as per the current income tax laws and rules. Investors are advised to consult their tax advisor before investing in such schemes.

Apart from the immediate year tax benefits, the entire proceeds are tax free after a lock-in period of 3 years. But in Finance Bill, 2018 long term capital gains tax @ 10% has been imposed.

The last 3 year CAGR average industry returns for ELSS category are 16.64%^*. The returns earned are Tax Free. (But in Finance Bill, 2018 long term capital gains tax has been imposed.) *Source: 3 years CAGR returns as on December 30^th, 2016 - from CRISIL.

Deduction of Equity Linked Saving Scheme (ELSS) is available under section 80C(2)(xiii)]

Any sum paid or deposited in the previous year by an individual or HUF— as subscription to any units of any Mutual Fund referred to in clause (23D) of section 10 or from the Administrator or the specified company under Equity Linked Savings Scheme, 2005 shall be eligible for deduction. The subscription must be made in the name of assessee.

* "Administrator" means the Administrator as referred to in clause (a) of section 2 of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 [Section 80C(8)(i)]

* "specified company" means a company as referred to in clause (h) of section 2 of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 [Section 80C(8)(vii)]

Salient features of ELSS :–

Long Term Capital Gains from ELSS are tax free. But in Finance Bill, 2018 long term capital gains tax @10% has been imposed.

You have the option for Dividend payout — In this case you will get some gain during Lock-in-period.

You can have growth option, in which case you will not get dividend.

Dividends are tax free.

Returns/Dividend in this case is market linked and not assured.

Minimum investment – Rs. 500/-. Maximum investment – No limit.

There are three options of ELSS are as follows :—

a) Growth option — No Dividend,

b) Dividend option — Dividends distributed,

c) Dividend re-investment option.

Dividend re-invested and you get 80C benefit also for re-invested dividend. Re-invested dividend will be further locked for 3 years from the date of investment of dividends.

[Note :— Equity Linked Savings Scheme, 2005 (ELSS) has been notified for this purpose — Notification No. 226/2005 dated 3-11-2005 [(2005) 7 ITM 690(JS)] as amended by Noti. No. 259/2005 dated 13-12-2005. To see full text of this scheme refer to (2006) 8 ITM 182(JS).]

Investments will have to be kept for a minimum period of three years from the date of allotment. After that it is the option of the investor.

A plan of ELSS by Unit Trust or a Mutual Fund would be terminated at the close of 10th year from the year in which the allotment of units is made under the plan.

Units issued under the plan can be transferred, assigned or pledged after 3 years of its issue.

The investments made after 1-4-2006 in plans formulated in accordance with Equity Linked Saving Scheme, 1992 or Equity Linked Saving Scheme, 1998 shall also qualify for deduction u/s 80-C.

Some examples of ELSS are

> HDFC Tax Saver.

> IDFC Tax advantage.

> Reliance Tax Saver.

> SBI Magnum Tax Gain.

> Axis Long Term Equity Fund.

> ICICI Pre Long Term Equity Tax Saving.

Do not forgot to nominate someone in this scheme.

You can invest directly(yourself) or through an agent. If you invest directly, it is known as direct plan but if you invest through an agent, it is known as regular plan. If you invest directly you don't pay any commission but if you opt for regular plan, commission will be deducted out of your ELSS.

Example of ELSS :-

invested in ELSS - HDFC tax saver - direct plan - growth option - on 15.02.2016 - Rs. 150000/-. NAV on that date is 328.278 - so I got units 456.930 ( 150000/328.278=456.930) - I got tax deduction - its NAV is 524.265 on 9.3.2018 - approx. increase is 60% (within 2 yrs 1 month) without considering the tax benefit.

invested in ELSS - HDFC tax saver - direct plan - growth option - on 18.11.2016 - Rs.150000/-. NAV on that date is 419.679 - so I got units 357.416 ( 150000/419.679=357.416) - I got tax deduction - its NAV is 524.265 on 9.3.2018 - approx. increase is 25% (within 1 yr 5 months ) without considering the tax benefit.

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