The mutual fund market offers a diversified portfolio where you can invest in several instruments for obtaining returns and gains. However, most of these investment schemes might cost you a sum as tax implications in the long run. Therefore, it is best to invest systematically in a profitable segment like in one of the best ELSS scheme where you are eligible to exempt from tax duties as well as claim a sum which you have paid earlier as taxes on the returns gained. Thus, investing in this scheme would enable you to get ELSS tax benefits on the returns you have gained so far.
Section 80C of the Income Tax Act exempts schemes like the ELSS or the Equity Linked Savings Scheme in India to get a deduction of up to Rs. 1.5 lakh annually on the income earned by an individual investor. Therefore, investing in the scheme with the hope to receive ELSS returns could be beneficial as you can exempt your earnings from draining in the payment of taxes.
Besides the Equity Linked Savings Scheme in India, Section 80C offers a series of various other tax-saving instruments. A few of them is listed below:
Investments made in Provident Funds, Insurance Premiums, Home Loans, etc.
Payments made for Pension Plans and Mutual Funds.
Payments made to the central government for schemes like the National Pension System or the Atal Pension Yojana, etc.
Given below are some of the investment plans with their interest rates and lock-in period, along with the ELSS scheme that is eligible for getting tax redemptions under Section 80C of the Income Tax Act of India:
ELSS scheme with 12% to 15% interest rate depending on market fluctuations at a lock-in period of 3 years with no assured returns as well as posing high risks.
NPS with 8% to 10% interest for the investors until they reach 60 years of age i.e., till their retirement. This scheme should not be assured of any promising returns and on the contrary, should pose high risks to the investment profile.
SCSS with an interest rate of 8.60% for a tenure of 5 years with assured returns and low risks.
PPF with 7.90% interest for over 15 years offering guaranteed returns with minimum risks.
NSC posing lower risks and assured cash flow at 7.9% for 5 years.
A ULIP plan, giving 8% to 10% fluctuating interest rates based on the market's uncertain conditions for a period of 5 years having moderate risk and no assured returns.
Fixed Deposit Scheme, at an interest rate of up to 8.40% for 5 years with guaranteed gains and low risks.
Sukanya Samriddhi Yojana, with an interest rate of 8.50% for 8-years, having low risks and guaranteed returns.
Since ELSS tax benefits are levied only on the ones posing low ELSS returns, therefore, risks are increased when incorporated in an ELSS. Since equities are always associated with high risks, so, the ELSS is not exempted from the risks posed by the market fluctuations. However, once you gain momentum there are irreversible profits from this plan.