ELSS refers to Equity Linked Savings Scheme. ELSS as the name clearly suggests is a savings scheme linked to equity markets. It is a type of mutual fund, which additionally offers tax benefits to the investors.
Equity linked saving schemes is a kind of mutual funds like diversified equity funds with Tax benefits. It is just like other tax saving instruments like National Savings Certificate and Public Provident Fund. Main advantage with ELSS is lock-in period is only 3 years while for NSC it is 6 years and for PPF it is 15 years. At the same time risk factor is high in ELSS.
As per Income Tax act 80c investment up to Rs 1, 20, 000 is eligible for deduction from the gross total income hence reducing the total taxable income. For example if your total annual income is Rs 6,00,000 and you invest Rs 1,20,000 in ELSS then your taxable income will become Rs 4,80,000, so that you can reduce the tax liability from 20% to 10%. Instead of paying 54000 you just have to pay 32000, here you are saving Rs.22000.
Previously there was an upper limit for investing in tax saving instruments like ELSS of 5,00,000. Only individuals with less than 5, 00,000 annual incomes are allowed to invest in tax saving instruments. But last now any individual can invest in ELSS irrespective of their income level.
Key Features of ELSS
ELSS is a fund with a lock-in period of 3 years.
It offers tax benefit to the investors under section 80c of the income tax Act up to a maximum limit of 1.2 Lac per annum.
Investment has to be for long term, any expectation of short term gains is not appropriate.
Involves a little bit of risk because of equity allocation.
ELSS helps an investor to get addicted to investments and savings by offering systematic investment option.
ELSS is very beneficial to salaried people.
Source : http://indianmoney.com/money-gyan-articles.php?cat_id=1&sub_id=11&aid=910&acat=&page_id=3&ahead=A%20Comparative%20Study%20OF%20ELSS%20and%20Traditional%20Investments%85..!!!&subcat=2
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