How can I use the 80C section to save taxes through equity-linked savings schemes (ELSS)?

Equity-Linked Savings Schemes (ELSS) are tax-saving mutual funds under Section 80C of the Income Tax Act, 1961. By investing in ELSS, you can claim a tax deduction of up to ₹1.5 lakh per financial year while benefiting from potential stock market returns.

1. What is ELSS and How Does it Work?

ELSS is a type of mutual fund that primarily invests in equities and equity-related instruments. It offers the dual benefit of tax savings and wealth creation.

ELSS comes with a lock-in period of 3 years, the shortest among tax-saving options under Section 80C. After this period, you can redeem your investments or continue holding them for long-term growth.

2. Tax Benefits of ELSS Under Section 80C

Investing in ELSS provides tax deductions under Section 80C, helping you reduce your taxable income.

• Maximum Deduction: Up to ₹1.5 lakh per financial year.
• Tax on Returns: Long-term capital gains (LTCG) above ₹1 lakh are taxed at 10%.
• Dividends: ELSS dividends are taxable as per your income slab.

3. How to Invest in ELSS for Maximum Tax Savings?

a) Invest Early in the Financial Year

Instead of waiting until the end of the financial year, invest early to avoid last-minute decisions and take advantage of market fluctuations.

b) Use the SIP Approach

Systematic Investment Plans (SIPs) in ELSS allow you to invest small amounts regularly, reducing market risk and ensuring disciplined investing.

c) Compare ELSS Funds

Different ELSS funds have varying returns and risk levels. Analyze past performance, fund manager expertise, and expense ratios before choosing.

4. Final Thoughts

ELSS is an excellent tax-saving investment that provides both tax deductions and market-linked returns. By investing early, using SIPs, and selecting the right ELSS fund, you can optimize your tax savings while growing your wealth over time.

Since ELSS has a lock-in period of only three years, it remains one of the most preferred tax-saving options for investors looking for high returns.