Why ELSS is 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 as ELSS funds as defined by the government. When you invest in these funds, your investment amount can be deducted from your taxable income. This lowers the amount of tax you need to pay. While there is no limit on the amount you can invest in ELSS funds, the tax exempted amount 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. Keep in mind though that this Rs 1.5 lakh limit is not limited to ELSS funds alone, but is 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). So before investing

This article was originally published on July 30, 2021.