Tax Saving Schemes: Tax experts say that ELSS is a much better option among the tax saving options included under section 80C of the Income Tax Act.
How To Save Tax: As the month of March approaches, taxpayers start looking for ways and options to save tax. But along with different options, it is also important to know which tax saving scheme is better in terms of returns and providing immediate cash when needed. Tax experts say that among the tax saving options included under section 80C of the Income Tax Act, ‘Equity Linked Saving Scheme’ (ELSS) is a much better option.
According to tax experts, to reduce the tax burden, a person should save Rs 1.5 lakh under section 80C, besides taking advantage of 80D (Mediclaim) and NPS under section 80CCD. Additional tax exemption can be claimed on contribution of Rs 50,000 in the National Pension System (NPS).
When asked about the better option among the various tax saving schemes like NPS, ELSS, National Savings Certificate (NSC) and Life Insurance Policy (LIC), Chintak Shah, Vice-Chairman, Anand Rathi Wealth Ltd, told PTI, “If it comes to claiming tax benefits under Section 80C of the Income Tax Act, then my choice is Equity Linked Savings Scheme (ELSS). According to Chintak Shah, “There are two main reasons for this. First, ELSS investment is directly linked to the stock markets and has historically given a long-term return of about 11 to 12 per cent annually. Second, the ‘lock in period’ under ELSS is only three years. That is, you can withdraw your amount after three years. ”
He said, “This facility allows investors to withdraw their investment amount for consumption needs or reinvest it in a new ELSS to avail benefits under Section 80C. Thus, making ELSS an attractive option for wealth creation as well as tax saving.”
In this regard, Vivek Jalan, partner at consultancy company Tax Connect Advisory Services LLP, said, “The choice of investment option depends on the person’s risk-taking ability, need and goal. While the interest on products like NSC, PPF is fixed and the government announces it every three months, the return on products like ELSS is not fixed and their performance depends on the market conditions.” Investment and savings products under 80C include ELSS, PPF, Sukanya Samriddhi Yojana, NSC, life insurance. NPS comes under section 80CCD.
The lock-in period of PPF is 15 years, while the lock-in period of NSC is five years. Under Sukanya Samriddhi Yojana, the lock-in period is till the girl turns 18 years old and LIC till the maturity period. If we talk about interest and returns, it is currently 7.1 percent on PPF and 7.70 percent on NSC. For Sukanya Samriddhi Yojana, it is 8.2 percent and in case of LIC, it is around five to six percent. In other tax saving measures apart from Section 80C, taxpayers can claim additional tax exemption by contributing Rs 50,000 to NPS under Section 80CCD (1B). This will further reduce their taxable income.
If we talk about returns, according to pension fund regulator PFRDA, investment in equity under NPS has given a return of more than 12 percent since its inception. On the other hand, in the case of government employees, NPS has given a return of up to 9.4 percent. Apart from this, taxpayers can also claim the loss incurred due to the recent fall in the stock market in their returns. This can help them reduce tax liability on other capital gains.
