How to choose the best tax saving investment

The term 'ELSS' stands for Equity-Linked Savings Scheme. The terminology may be old-fashioned but the idea is very straightforward. Mutual fund companies in India operate a set of mutual funds that qualify to be ELSS funds, as defined by the government. When you invest in these funds, then the amount that you invest can be deducted from your taxable income. This lowers the amount of tax you need to pay. There's no limit on the amount you can invest in ELSS funds but the tax exemption is capped at Rs 1.5 lakh in a financial year. Effectively, this means that if you are in the highest tax bracket, then you will pay Rs 46,800 less tax than you would otherwise have done. This Rs 1.5 lakh limit is not standalone, but the combined limit under Section 80C of the Income Tax Act. There are a number of other investments that are clubbed under section 80C, including EPF (Employees Provident Fund) and PPF (Public Provident Fund). However, ELSS funds are uniquely advantageous com

This article was originally published on March 09, 2021, and last updated on February 16, 2023.