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Why ELSS is better tax saving investment option in India

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With the financial year nearing its end, many of us will start looking at investment opportunities under section 80C to save on our taxes.

We have several choices under the Section 80C including Public Provident Fund (PPF), 5 years Bank Fixed Deposits, National Saving Certificate, Equity linked saving schemes (ELSS) etc. Each of these tax saving investment have their own distinct features.

Among these, ELSS is gaining popularity because of its wide benefits. Here’s all you wanted to know why ELSS is better tax saving investment option in India.

Also read: 5 Best Free Tax Filing Websites In India

Why ELSS is better tax saving investment option in India

Below we are going compare Equity linked saving schemes (ELSS) with other popular tax saving investments.

Schemes Lock-in period Taxation
Equity Linked Savings Schemes (ELSS) 3 years Returns from ELSS are tax-free as long-term capital gains tax on equity investments sold after a year is nil
Nation Pension Scheme (NPS) Until age 60 Tax free up-to 40% of the total corpus accumulated
Public Provident Fund (PPF) 15 years Nil tax
Employee Provident Fund (EPF) 15 years Accumulated amount and interest is exempt from tax at the time of withdrawal
5-year bank deposits 5 years Interest is taxed at slab rate and TDS if annual interest crosses Rs 10,000.
National Savings Certificates (NSC) 5 years Interest is taxed at slab rate

Advantages of ELSS funds

1. Superior returns: Since ELSS funds entirely invest in stocks, they are best placed to earn better inflation beating returns. Other debt instruments can give about 8% of returns, investing in equity may produce higher returns in favorable situations in the stock market. In the rising economy like India, a good ELSS fund with quality stocks may reap higher returns.

2. Lock in period: Biggest advantage of ELSS is the lock in period. Beyond 3 years, you can redeem part or whole of your ELSS at any time. Since these ELSS funds invest your money in equity market, you possess chances of higher returns with tax exemption.

3. Taxation: Corpus once you done with the lock in period are 100% tax free. So the returns, dividends, and the capital gains from these ELSS funds also become tax-free.

Disadvantages of ELSS funds

No guaranteed on the returns because ELSS earn from investments in the stock market. However, on the long run equity market have outperformed all other asset classes. The key to successful mutual fund investing is to choose a good ELSS and stay invested for the long term.

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  1. REKHA says

    Thanks for this Amazing post.