Financial planning not only means saving up some money every month from your income. It is a lot more! It is a well-known fact that to have a stable financial life, it is essential to have a plan in mind. Financial planning is analyzing your current financial situation and creating a plan to reach your goals. Apart from long-term planning, which we all do, if you are even planning a short-term goal in mind, one of the best ways to invest is in the best mutual funds.
However, not many of you might know that you can save on taxes by investing in mutual funds. Now, they are not any mutual funds but some specified tax saver mutual funds. A special category of mutual funds known as the Equity Linked Savings Scheme (ELSS) allows you to save tax by simply investing in them.
What is ELSS?
ELSS is an open-ended tax saver mutual funds that invest in the stocks of various companies or organizations. But, remember, it comes with a lock-in period of three years. So the more you retain your investment in these funds, the more your chances of making money.
To cut it short and simple, if you wish to save tax, you’d have to invest in an ELSS, where your invested amount would remain locked for three years.
What are the tax benefits of investing in ELSS?
According to section 80C of the Income Tax Act, 1961, by investing in an ELSS, you get to claim the investments you make in the fund in a financial year as deductions from your total income for that particular year.
I’ll share a small example to make it easy for you to understand how I invested in the same. Like I invested Rs 1 lakh in an ELSS during the 2021-22 financial year so that I can deduct the amount of Rs 1 lakh from my total income for that year. Notably, this section further states that the maximum amount one can claim as deductions in a year is around Rs 1.5 lakhs.
Not only this, but the profits you gain at the end of the maturity of the ELSS are categorized as Long Term Capital Gains (LTCG), which are taxed at a flat rate of 10%. Now, the LTCG above Rs 1 lakh in a year is only liable for being taxed. So, if it is below it, there would be no tax.
So, apart from investing in the best mutual funds, one needs to keep an eye on how to save tax by investing smartly.
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How to invest in ELSS?
I invested in the same via the Bajaj Finserv application, which I generally use for all kinds of digital payments, so I’ll share my personal experience. Here is a step-by-step guide –
- Download the Bajaj Finserv Application on your smartphone. It is available for both Android (Play Store) as well as iOS (App Store).
- Sign up with your credentials.
- On the home page, you’ll see a section for ‘Investment Bazaar.’
- Here, go on ELSS
- Select the plan that suits you, and you are good to go.
However, investing in a Systematic Investment Plan (SIP) is another way to go for tax savings. You can go for the best mutual funds for sip on this app as it offers this facility also.