Systematic Investment Plan (SIP) is a great way for building wealth in a disciplined manner. But first of all, let’s understand “what is SIP?”
What is SIP?
SIP is a “Systematic Investment Plan” where an investor invests a particular amount at a regular interval such as quarterly, monthly or weekly. The Systematic Investment Plans can be started from as low as Rs 500. However, the investors with tax-saving in mind should note that all SIPs are not tax-free.
What are tax-free investment options?
If you are looking for tax-free investment options that can help you save tax, then go for these – Equity-linked savings schemes (ELSS), Public Provident Fund (PPF), Employees’ Provident Fund (EPF), Unit Linked Insurance Plan (ULIPs), insurance plans etc.
Tax deduction under Section 80C of Income Tax Act
Under the Section 80C of the Income Tax Act, investments in Equity Linked Savings Schemes (ELSS) or tax saving mutual fund schemes qualify for a tax deduction. The investors can claim a tax deduction on principal amount (up to R 1.5 lakh) under Section 80C and also the interest earned is tax-exempt under Section 10.
Schemes that generate taxable income
In other tax-saving schemes such as National Savings Certificate (NSC), Senior Citizens’Savings Scheme (SCSS), 5-year time deposits with banks and Post Offices, the interest amount earned gets added to the income and therefore it will be taxed according to income tax slab of that particular year.
Point to note
Hence, while selecting tax-saving SIP schemes, make sure the interest you earn is also tax-exempted.
