Why Tax Saving U/S 80C Needs Strong Planning?

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On realizing the amount of your total income that you save in tax saving instrument, you would definitely pay more attention while stowing your money in any one of them, and ditch the ‘first choice investment’ approach. Let’s know more about this. 

Why Plan Before Investing in Tax Saving Option U/S 80C?

1. You Are Investing a Significant Amount in it

The majority of the investment instruments that qualify for tax saving come under Section 80C of the Income Tax Act of India, 1961. By investing in these instruments, a person can enjoy tax deduction up to Rs 1,50000 and the limit keeps on changing at irregular intervals. Also, under 80C, you have an option to invest in NPS and enjoy additional deduction up to Rs 50,000 which was introduced in 2017.

Now, let’s understand why investing in tax saving instruments is not meant to save tax only and can have a greater influence.

Assuming that you are taking full benefit of the deduction under section 80C, you would have invested around Rs 7 lakhs in 5 years tenure. Similarly, the amount becomes Rs 9 lakhs, Rs 12 lakhs, and Rs 16 lakhs for 7, 10, and 15 years tenure, respectively.

Considering the amount you are investing, don’t you think choosing tax saving instrument under 80C should be a well-planned affair and not just a liability to complete? Well, don’t you want to make an informed decision now?

2. A Basket of Options Are Available to Choose From

There is a wide range of options that you get to invest in to save tax under Section 80C. From PPF to life insurance premiums and NPS to ELSS, the list has many varieties to offer. A few of the other solution-oriented plans are also available including Sukanya Samriddhi account for the welfare of daughters and Senior Citizens Savings Scheme which is specially meant for people over 60 years of age.

Being an investor, do you focus so much before investing in tax saving instrument? Well, not really. Because when you invest in a rush with a sole motive to pay lesser tax, you may not give full attention to understand your choices.

What you should actually do is evaluate all the provided options to make the optimal use of the invested amount.

On one hand, where ELSS comes with the shortest lock-in period, it may sound an attractive choice to investors who are unwilling to keep their money locked for long. But they should also understand that such funds are market-linked which make them suitable for investors with high-risk appetite and longer investment duration. Investors who are looking for guaranteed interest can opt for PPF but again this comes with a lock-in of 15 years. With lesser risk appetite, one can go for lower risk options such as Fixed deposits, post office schemes, and PPF.

3. Lock-in Period Isn’t Maturity Period   

Many investors opt to invest in ELSS mutual funds because of the short lock-in period. They must know that this isn’t the right attempt. If you invest in FD for 3 years, you get guaranteed interest after the completion of the maturity period, however, this is not the case with ELSS. Being market-linked instruments, they offer the best returns in the long duration. The longer you stay invested, the longer time your investment has to compound the returns.

What to Choose for the Last Minute Tax Saving?

ELSS mutual funds are schemes which specially offer you tax saving benefits along with high returns due to investment in equity instruments. If you are seeking last-minute investment option to save tax as the financial year draws to a close, then these mutual funds can be your ideal choice.

Equity Linked Savings Schemes have the potential to generate higher returns compared to other tax-saving investments as they are market-linked. This also states that there is some amount of risk that comes with it, but it is calculated risk. There is no limit on the amount that investor can invest in any of these schemes, but the tax benefit is available only for Rs 1.5 lakh. 

Such schemes come with a lock-in period of 3 years and it is the lowest among all the options available under section 80C. Capital gains from ELSS schemes are subject to long-term capital gains (LTCG) tax if the amount exceeds Rs 1 lakh. 

How MySIPonline Can Help You Find the Right Way?

Are you too stressed due to a shortage in time to planning tax saving for 2019? Well, leave your worries to us at MySIPonline. We will help you pick the right ELSS mutual fund to make the investment and gain the dual benefit of tax saving and high returns. In case you have some other query concerning regular mutual fund schemes, do write to us in the form provided below. We will be happy to answer you asap.