Tax Saving: Invest in this scheme before March, you will get tax exemption along with a strong return of 12%!

ELSS Tax Saving Scheme: As the month of March approaches, taxpayers often start looking for different options to save tax, but along with different options, it is also important to know which tax saving scheme is better in terms of returns and providing immediate cash when needed. Tax experts say that among the tax saving options included under Section 80C of the Income Tax Act, the 'Equity Linked Saving Scheme' (ELSS) is a much better option.

Savings on 80C, 80D, 80CCD

Tax experts also say that to reduce the tax burden, apart from saving Rs 1.5 lakh under Section 80C, a person should also take advantage of 80D (health insurance) and NPS under Section 80CCD. Additional tax exemption can be claimed on a contribution of Rs 50,000 to the National Pension System (NPS).

Experts liked the ELSS scheme.

When asked about the better option among various tax saving schemes like NPS, ELSS, National Savings Certificate (NSC), and Life Insurance Policy (LIC), Chintak Shah, Vice President, of Anand Rathi Wealth Ltd. said, "If it comes to claiming tax benefits under Section 80C of the Income Tax Act, my choice is Equity Linked Savings Scheme (ELSS)."

Annual return of 11-12%!

Shah said, "There are two main reasons for this... First, ELSS investment is directly linked to the stock markets and has historically given long-term returns of about 11 to 12 percent annually. Second, the 'lock-in period' under ELSS is only three years. That is, after three years you can withdraw your amount."

He said that this facility allows investors to withdraw their investment amount for consumption needs or reinvest it in a new ELSS to avail of benefits under Section 80C. Thus, this combination of wealth creation and tax efficiency potential makes ELSS an attractive option.

How to choose an investment option?

In this regard, Vivek Jalan, partner at consultancy firm Tax Connect Advisory Services LLP, said, "The choice of investment option depends on the individual's risk-taking ability, need and goal. While the interest on products like NSP, and PPF is fixed and the government announces it every three months, the return on products like ELSS is not fixed and their performance depends on the market situation."

What options are included in 80C

It is worth mentioning that the investment and savings products under 80C include ELSS, PPF (Public Provident Fund), Sukanya Samriddhi Yojana, NSC, life insurance, etc. NPS comes under section 80CCD. The 'lock-in period' of PPF is 15 years, while the 'lock' period of NSC is five years. On the other hand, under Sukanya Samriddhi Yojana, the lock-in period is till the girl child attains 18 years of age, and for LIC, the maturity period.

If we talk about interest and returns, it is currently 7.1 percent on PPF and 7.70 percent on NSC. It is 8.2 percent for Sukanya Samriddhi Yojana and around five to six percent in the case of LIC.

Claim of Rs 50,000 exemption on NPS

When asked about other tax saving measures apart from section 80C, Shah said, "Taxpayers can claim additional tax exemption by contributing Rs 50,000 to NPS under section 80CCD (1B). This will further reduce their taxable income."

He also said that although the investment in NPS is for a long period, it lacks complete liquidity i.e. cash. Therefore, individuals should evaluate this option carefully before adopting it.

Extra tax savings on NPS

Regarding this, Jalan said, "Investing in NPS helps a person to save additional tax up to Rs 50,000. It is one of the major tax saving schemes for taxpayers, employees, and self-employed people coming under the new and old tax system."

He said that there is a facility of partial withdrawal from NPS which depends on the prescribed circumstances and criteria. Also, the withdrawn amount is eligible for tax exemption if it is up to 25 percent of the self-contribution. Apart from this, tax exemption is also available on lump sum withdrawal of 60 percent of the collected NPS fund on reaching 60 years or retirement. Pension products have to be purchased with the remaining 40 percent amount.

If we talk about returns, then according to the Pension Fund Regulatory and Development Authority (PFRDA), investment in equity under NPS has given a return of more than 12% from the beginning till now.

On the other hand, in the case of government employees, returns from NPS have been up to 9.4 percent. Responding to a question, Shah said it is important to ensure that taxpayers make full use of all eligible deductions. For those who opted for the old tax regime, this includes maximum deduction under Sections 80C and 80D (health insurance and preventive health care).

Apart from this, taxpayers can also claim losses incurred due to the recent fall in the capital market in their returns. This can help them reduce tax liability on other capital gains.

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