Hyderabad: It is high time to make tax-saving investments. We are in the last quarter of the 2022-`23 financial year. Many options are available to reduce your tax burden. Of them, the Equity Linked Savings Schemes (ELSS) enable gainful investments in the stock market. They offer the combined benefits of long-term investment while achieving financial goals. Let us look at some of the tax saving schemes that will effective meet our financial plans.
One of the important goals in financial planning is tax saving. This should start from the first month of the financial year. However, most people only think about it after January in the fourth and last quarter. In such a time, not decision should be made in haste. Even though the time is very limited, your can get considerable tax benefit if you choose the right scheme. It requires full understanding of the long term benefits that a particular scheme offers.
Compared to other schemes, the ELSSs offer a wide range of advantages. This is why they are attracting the attention of investors in a big way. Under Section 80C of the Income Tax Act, the investment made in an ELSS is exempted from tax. It is subjected to a limit of Rs 1,50,000 per year. Apart from this, the ELSSs work like regular mutual fund schemes.
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There are certain aspects that need to be considered. The ELSSs require the investments to be continued for at least three years and tax exemption is available up to a limited amount. They also have growth, dividend and dividend reinvestment options. After the 3-year lock-in period, the ELSSs become open-ended with easy liquidity option.
Under these ELSS schemes, you can provide an opportunity to invest in a lump sum or in a phased approach. The ELSSs invest in equity and equity-based investments. When the investments in equities are continued for more than one year and the income exceeds Rs 1 lakh in that financial year, 10 percent tax has to be paid on the additional income.
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It is important to choose the right investments for capital growth. Generally the lock-in period for other tax-saving schemes is five years. Compared to these, the lock-in of ELSS is only three years. You can opt for these for tax exemption if you want schemes with short duration. They are also suitable for doing SIP (Systematic Investment Plan).
The ELSS investments can be withdrawn after three years. Or may be continued. The first month's SIP amount can be withdrawn and reinvested after the expiry of three years without any additional burden. This way the cycle of investments will continue. Managers of ELSS schemes invest in sectors and shares with a long-term focus. Thus, the chances of receiving stable returns are high. Moreover, the three-year lock-in allows investments to grow.
