ELSS VS Tax Saving FDs: Taxpayers always look for exemptions in multiple ways. In this case they have two best options, ELSS Mutual Fund and Tax Saving FD. But both these investments have certain advantages and disadvantages. find out
ELSS VS Tax Saving FDs: Tax deductions can be claimed on certain expenses and investments under Section 80C of the Income Tax Act. ELSS mutual funds and tax saving fixed deposits are two of the several investment options under this category. Both of these options allow a taxpayer an annual tax deduction of up to Rs.1.5 lakh. However, each of these possibilities has its own objectives, risks and returns. How you can claim tax exemption up to 1.5 lakh taka using this fund is mentioned below.
What is Equity Linked Savings Scheme or ELSS Fund?
Equity Linked Savings Scheme or ELSS is the only mutual fund that is eligible for tax exemption under Section 80C of the Act. It is basically a diversified equity mutual fund that is able to provide tax benefits up to Rs 1.5 lakh per year.
Returns received from ELSS were earlier tax free. But as per Budget 2018 long term capital gains above Rs 1 lakh have been levied at 10%. But, even after a 10% tax drop, ELSS has the potential to outperform other tax saving products in terms of returns. You can also get benefits of investing in ELSS beyond tax savings. If you invest for five years (which is a tax-saving fixed deposit tenure), the power of compounding ensures that your money doubles. However, in this case the lock-in period is only three years.
What is Tax Saving Fixed Deposit?
Investments in Fixed Deposits are tax deductible up to Rs 1,50,000 per financial year. These deposits have a lock-in period of five years. But the amount you deposit in fixed deposit cannot be withdrawn till the expiry of the period. But one advantage in this case is that you can take loan against your fixed deposit. Note that interest collected on deposits is taxable as per individual’s tax bracket.
ELSS is a type of mutual fund that mainly invests in equity based products. On the other hand, traditional investment instruments you can invest individually in any bank. Returns on ELSS are not fixed and are subject to equity market risk. ELSS has provided returns of 14% to 16% to its investors over the last 5 years. Whereas banks offer interest rates ranging from 6% to 7.5% in case of fixed deposits.
Consider your age, investment desire and risk before taking a new investment step. In this case ELSS is a good option for those looking for the twin benefits of wealth growth and tax exemption, with expert advice. On the other hand, people nearing retirement can consider investing in tax free savings accounts. Because these investments have low risk and guaranteed returns.
