MUMBAI: It's that time of year when taxpayers under the old tax regime - mostly the salaried class - rush in to invest that extra amount to help them save some taxes under section 80C of the
Income Tax
Act.
The
tax saving options
available to taxpayers are quite a handful: Equity Linked Savings Schemes (
ELSS
), National Savings Certificate (NSC), Public Provident Fund (
PPF
),
NPS
, specifically approved bank fixed deposits (FDs), life insurance plans, Sukanya Samriddhi Yojana and a few others.
Taxpayers can invest up to Rs 1.5 lakh per annum in these financial products.
While taxpayers should spread the tax-saving exercise over the full length of the fiscal, consultants say they become more active in investing or buying such tax saving products, investment managers and financial consultants in the JFM (Jan-Feb-March) months. Consider this: Between April 2022 and Jan 2024 - during the first nine months of each fiscal - ELSS recorded an average monthly net outflow of Rs 77 crore. In comparison, the corresponding figure for JFM in the same years jumped to Rs 917 crore, data released by industry trade body Amfi showed.
"Although taxpayers tend to invest in tax saving instruments during JFM of each year, ideally, they should spread that over the full year. That could even allow them an extra 2-3% in returns," said Soumya Sarkar, co-founder of Wealth Redefine, an Amfi-registered mutual fund distributor.
According to investment managers and financial advisers, on several counts, ELSS floated by fund houses are the best tax saving options.
"Among the many options to save tax under section 80C of the Income Tax Act, an investor can consider ELSS. These come with a mandatory lock-in of three years which is the lowest compared to other available options," said Christy Mathai, fund manager of equity, Quantum MF. Sarkar agrees. "The longer the lock-in, longer is the unavailability of the funds invested," he said.
"An ideal way to invest into an ELSS fund would be to do an SIP such that an investor is not compelled to invest in equity when the valuations are high," Mathai said.
ELSS enjoys two more advantages over competing products. While almost all other tax saving products are in the fixed income category - the returns from which barely beat inflation - ELSS are equity instruments which, although carry higher risks, beat inflation in the long run by a wide margin that, in turn, helps investors create wealth.
English (US) ·