The Equity Linked Saving Scheme (ELSS) is a type of mutual fund that primarily invests in equities and equity-related securities. If you invest in ELSS mutual funds, you can claim a tax deduction under Section 80C. ELSS funds are the only mutual funds covered under Section 80C. However, the section does include other tax-saving investments, such as a five-year fixed deposit, Public Provident Fund (PPF), National Pension Scheme (NPS), life insurance plans, and more.
How has the budget for 2022 affected investments under Section 80C?
Unfortunately, there were no announcements on Section 80C in the Union Budget 2022. Even though there were rumors of increasing the tax savings limits, the finance minister did not acknowledge any new changes to the existing provisions.
How can you use Section 80C to plan tax-savings this year?
You can claim a tax deduction of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act, 1961 by investing in any one of the following options:
- 5-year bank fixed deposit
- Unit Linked Insurance Plans (ULIPs)
- National Pension Scheme (NPS)
- Public Provident Fund (PPF)
- National Savings Certificate (NSC)
- Sukanya Samriddhi Yojana (SSY)
- Senior Citizen Saving Scheme (SCSS)
You can save up to a total of Rs. 46,800 in taxes in a financial year. However, keep in mind that you can claim a tax deduction only if you opt for the old tax regime. There are no tax deductions and exemptions under the new tax regime.
Additionally, if you prefer to invest in mutual funds, you can consider ELSS funds. ELSS is the only mutual fund scheme that is covered under Section 80C. ELSS funds can offer multiple tax benefits, such as:
- You can save up to Rs. 46,800 every year with a tax deduction of up to Rs. 1.5 lakh per annum.
- ELSS has a mandatory lock-in period of three years, so you are taxed as per long-term capital gains (LTCG). The LTCG tax for equity funds is charged at 10% plus 4% cess. This is relatively lower than other categories of tax. Moreover, long-term gains of up to Rs. 1 lakh are exempt from any tax. This means you would have no tax liabilities if your gains are lower than Rs. 1 lakh in a year.
ELSS invests in equity, so you stand to earn inflation-beating returns that can help you plan for various financial goals like home purchase, travel, retirement, higher education expenses of a child, and more.
Given its advantages, you can consider a SIP (Systematic Investment Plan) or a lump sum investment in ELSS mutual funds of your choice.
To sum it up
Even though there were no changes for tax savings under Section 80C in the budget, the section still remains one of the most crucial tools for taxpayers all across the country. You can save up a lot of money if you use it to your advantage.
If you want to enjoy the benefits of Section 80C, download the Tata Capital Moneyfy App and start investing!