Mukesh Patel.in
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ELSS BONANZA – TAX SAVING WITH AMAZING RETURNS

Reap Healthy Returns Through Equity Investment

Via Mutual Funds Coupled With Valuable Tax Saving Benefits


 

THE ELSS TAX BONANZA

  • Tax Saving upto 30.9% of investment under Section 80C
  • Tax Exempt Dividends under Section 10(35)
  • Tax Exempt Capital Gains under Section 10(38)

The provision for deduction under Section 80C of the Income-tax Act in Equity Linked Savings Scheme (ELSS) opened up a great opportunity for taxpayers to reap the twin benefits of earning appreciation via investing in the capital market, along with reaping valuable income-tax saving.

ELSS – A Champion Tax Winner!


 Investment in ELSS bears a lock in period of 3 years.  Thereafter, the investor has the option to exit at any period of time of his choice.  Apart from the benefit of deduction under Section 80C, which can offer a straight return of upto 30.9% right away in form of income-tax saving in the year of investment, dividends declared on ELSS units are tax free under Section 10(35) during the period of holding and the long term capital gains earned on sale of units at the time of exit are further tax exempt under Section 10(38).

 

ELSS has emerged as an amazing new investment option, offering you the golden opportunity to reap healthy returns through equity investment via Mutual Funds, coupled with valuable tax saving benefits. If the choice is judicious, the timing is right and lady luck smiles on you, ELSS can be a champion winner all the way.


 Even if PPF continues to be your first choice for investment upto Rs.70,000, you may still like to consider the balance Rs.30,000 for ELSS investment, which in all probability can fetch you a healthy return and that too tax exempt!


Case Study: Mr. Smart had invested Rs.1,00,000 on 1st January, 2005 in the SBI Magnum Tax Gain Scheme notified as ELSS.  At the then prevailing Net Asset Value (NAV) of around Rs.15.57 per unit, he was allotted 6,422 units.  Being a taxpayer in the top bracket, Mr. Smart saved income-tax of Rs.30,600 in the year of investment itself by availing the benefit of deduction of Rs.1,00,000 in ELSS under Section 80C.


Post investment, he received dividends of Rs.10.20 per unit in June, 2005, Rs.15 per unit in March, 2006, Rs.11 per unit in March, 2007, Rs.11 per unit in February, 2008 and Rs.2.80 per unit in May, 2009. Thus in 60 months, Mr. Smart received total dividend of Rs.3,21,100 (6,422 units x Rs.50 per unit), which has been totally tax-free under Section 10(35).


Mr. Smart being eligible to redeem his holding of 6,422 units anytime after the three year lock in period of ELSS, he decides to redeem the units on 31st December, 2009 at the then prevailing Magnum Tax Gain NAV of Rs.57.77. The appreciation as on that date, which works out to Rs.2,71,008, at Rs.42.20 (57.77 – 15.57) per unit, being long term capital gains (LTCG) on redemption, will be fully exempt under Section 10(38).

 

AMAZING RETURN ON ELSS – OVER SIX TIMES GROWTH IN 5 YEARS
How Rs.1,00,000 invested in SBI Magnum Tax Gain
have yielded return of Rs.6,22,708 in 5 years?
Original Investment on January 1, 2005
Tax Saved on Investment (in year of investment)
Tax-free Dividend Earned (in 5 years)
Rs. 1,00,000
Rs.
30,600
3,21,100
Exempt Gains on Redemption (on December 31, 2009)
2,71,008
Effective Tax Saving, Income & Appreciation
on Investment realized in 5 Years (623%)
Rs.6,22,708
Rs.
Rs.


AMAZING RETURN ON ELSS – OVER SIX TIMES GROWTH IN 5 YEARS

How Rs.1,00,000 invested in SBI Magnum Tax Gain have yielded return of Rs.6,22,708 in 5 years?

Original Investment on January 1, 2005  Rs. 1,00,000

Tax Saved on Investment (in year of investment)  Rs.    30,600


Tax-free Dividend Earned (in 5 years)    Rs. 3,21,100
Exempt Gains on Redemption (on December 31, 2009) Rs. 2,71,008

Effective Tax Saving, Income & Appreciation on Investment realized in 5 Years (623%)    Rs. 6,22,708
      

 

Look out for a Notified ELSS with a good track-record

 

It needs to be borne in mind that not every equity scheme of a Mutual Fund is an eligible ELSS.  Only such schemes duly notified as ELSS are eligible for the benefit of deduction under Section 80C.  Moreover there is a minimum lock-in period of three years.

 

Almost all leading Mutual Funds offer ELSS. It would be worthwhile to analyze their performance track-record of returns and growth before locking up your investment under the scheme.

 

 

 

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