Equity Linked Saving Scheme (ELSS Funds)
Section 80C of the Income Tax Act 1961 simply says that if you invest in one of the several approved investment products/instruments listed in it, you can claim a lump sum deduction from your total taxable income. Thus the amount of your income that will be subject to tax will be lower, resulting in lower tax payable
As of now, the maximum amount of deduction that can be claimed stands at ₹1,50, 000 (as of Financial Year 2021 - 22). But that is under the old tax regime; there are no such deductions if you are opting for the new tax regime.
The deduction under section 80C is however only applicable for individuals and Hindu Undivided Families (HUF) and not for the other assessees.
Thus, by investing in the following tax-deductible instruments specified under Section 80C, you can save a significant amount of money as you will have to pay lower taxes:
- Equity Linked Savings Scheme (ELSS)
- Public Provident Fund (PPF)
- Employee Provident Fund (EPF)
- Tax-Saving Fixed Deposits (FD)
- National Pension System (NPS)
- National Savings Certificates (NSC)
- Unit Linked Insurance Plans (ULIP)
- Sukanya Samriddhi Yojana (SSY)
- Senior Citizens Savings Scheme (SCSS)
These investments are very different from each other in terms of structure, investment horizon, and risk profile. Similarly, the returns that you can get can also vary significantly.
Hence it is important that you choose your investment options carefully and try to get the best returns from them as per the amount of risk that you are willing to take.
Hence, by investing in a tax-deductible instrument under Section 80C, you can earn good returns apart from saving taxes when you invest in them.