Tax Saving SIP

Tax Saving SIP

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Reduce your tax liabilities by investing in the best Tax Saving SIPs

Key Takeaways

  • Equity Linked Savings Scheme (ELSS) Mutual Fund SIP is known as Tax Saving SIP.
  • You can get tax deductions on ELSS investments of up to INR 150,000 under Section 80C.
  • Every ELSS SIP has a 3-year lock-in period.
  • At least 65% of assets in ELSS SIPs are invested in equity and equity-related instruments.
  • Long-term Capital Gains Tax is applicable on gains exceeding INR 100,000 per annum.

We can all concur that paying a large chunk of our hard-earned money in government taxes is not a joyous sentiment, although crucial by law. However, the Indian Government offers numerous tax saving schemes to reduce the tax outgo. One such way of saving taxes and earning high returns is investing in Equity Linked Savings Scheme Mutual Funds. You can invest in ELSS Tax-saving SIPs and reduce your tax liabilities considerably. Here is an article on Tax-Saving SIPs.

What is a Tax-Saving SIP?

A tax-saving SIP, also known as Equity Linked Savings Scheme (ELSS), is a Mutual Fund scheme that you can invest in via a Systematic Investment Plan (SIP). This scheme allows investors to avail tax deductions of up to INR 150,000 under Section 80C of the Income Tax Act, 1961. ELSS invests at least 65% of the funds in equity and equity-related instruments and comes with a mandatory 3-year lock-in period.

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Reasons To Consider ELSS SIPs Over Lumpsum

  • With SIPs, you do not have to time the market
  • You can invest in instalments and grow your corpus gradually
  • You do not have to lock away a lumpsum amount for 3 years
  • You can pause SIPs whenever you like.
  • You can benefit from compounding and Rupee-cost averaging.

Features and Benefits of Tax-Saving SIPs

Tax Benefits

The principal benefit of ELSS Tax-Saving SIPs is that it is the only equity investment on which you can get Section 80 C tax deductions of up to INR 150,000. By investing a maximum of 150,000 per annum in various SIPs, you can save approximately INR 46,800 as a tax-payer in the highest slab of 30%.

Lock-in Period

Not only are ELSS Tax-Saving SIPs tax-efficient, but they also have the lowest lock-in period among all 80C investments. While the minimum lock-in periods for other 80 C tax-saving investments range from 5 to 15 years or more, each ELSS SIP has a short lock-in period of only 3 years.

Returns

ELSS SIPs tend to generate significantly higher returns than other 80 C schemes. Fund Managers allocate more than 65% of funds in equity assets. Hence, you can expect higher returns, in the range of 10% - 18% in the long term, compared to other Mutual Fund and 80C investments.

Investment

Tax-saving SIPs come with a minimum investment amount of INR 100 but could differ from one Fund House to another. Moreover, you can choose a multitude of ELSS tax-saving SIPs, diversify your investment, and utilise maximum tax-saving benefits.

Final note

The SIP tax-saving facility is only available on ELSS schemes. While it is an excellent tax-saving instrument generating high returns, it also comes with inherent market volatility and fluctuation risks. Moreover, each SIP is locked away for at least 3 years, and you have to pay a Long-Term Capital Gains Tax of 10% without indexation on gains exceeding INR 100,000 from ELSS investments. So, ensure you assess your risk appetite before choosing the best tax-savings SIPs.

Download digibank by DBS on your smartphone, register, and choose any tax-saving options from the menu.

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*Disclaimer: This article is for information purposes only. We recommend you get in touch with your income tax advisor or CA for expert advice.

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