Best Options to save tax under Section 80C

A lot of us tend to have limited information on the tax saving options available and how they actually affect our savings. In this DIY day and age where every option is available on a platter, it may get daunting for a novice to choose the best. For when it comes to your hard-earned money, you want the best of the best. Section 80C of the Income Tax Act is the most popular choice for tax saving, also because it offers tax saving up to 1.5 lakhs for a financial year via investments.

There is a somewhat incorrect perception amongst investors that when it comes to tax, you will have compromise on the returns. The reason being- if a tool is helping you save money one way, you can not expect it to then help you gain wealth competitively. Well, we are here to demystify 80C for you and represent the correct picture. Let us look at all the 80C tax saving contenders and find that it is very possible to save the tax and gain wealth at the same time- if you choose wisely.

Investments qualifying under Section 80C

Our Financial Goals are heavily dependant on certain factors that influence our decisions in the end. Let us look at how each of these tools’ fairs with each of those factors-

Lock-In period

Every tax-saving investment vehicle comes with a lock-in period, before which you can not redeem the money. As per the rules of compound interest and rupee cost averaging, it is always better to let the money be invested for longer periods. Even so, a bit of liquidity has not harmed anyone.

The below illustration shows the locking period of various tools-

ELSS is the clear winner here. Even though you may decide to continue with the investment further and not withdraw, it allows you that mental peace of knowing that this money is available.

Rate of return

Easily the most important influencer of investment decisions and can not be underestimated. What one looks for is the growth and stability of returns, primarily.

Let us hypothetically assume that we have Rs 1 Lakh to invest in a financial year. Let us see the performance of this money when invested in various tools, YOY till 15 years:

*The rates of interest are assumed as per past trends. These are approximate, not exact

ELSS returns are unmatched, proving that tax saving and wealth creation can very well go hand in hand.

Taxation on income/gains

Now assume that you have made all you goal calculations with the assumption that the returns cited above will be wholly yours at the end of the maturity period. That’s logical, right? Wrong. Some of the investment returns like PPF are tax-free but others like the tax-saving FD are not. The interest earned from the FD is fully taxable.

Hence it is important to weigh the pros of the rate of return against the cons of the taxed return while choosing the correct tool.

With the above most important factors affecting your goal-decisions, let us be wise this tax-season and invest in what gets us the most profitable return i.e. ELSS. ELSS funds are open for both SIP or Lumpsum investments and are most investor-friendly.

If your financial planning needs assistance, please consider talking to our qualified investment advisors. We will be happy to pick the best tax saving investments and make this a cake-walk for you!

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