Tax Planning or Income tax savings are an integral part of investment and overall financial planning that helps in a bid to maximize wealth. Tax planning in India involves the selection of the right tax saving instruments and making proper investments. One of the key sections under which individuals can save tax is the Section 80c of the Indian Income Tax Act. Under this section, investments up to ₹1,50,000 per annum are eligible for deduction from your taxable income.
These are some option you can save your money to get tax benefit under Section 80c:
In total you can invest your money of ₹1,50,000 per annum in these instruments which will be consider fro tax benefit and get deducted from your taxable income. So, if you've invested in PPF ₹50,000 per annum, then you can invest get tax benefit of ₹1,00,000 per annum for investment on ELSS.
Suppose if you have invested ₹1,50,000 per annum in ELSS, then only ₹1,00,000 per annum eligible for get tax benefit under Section 80c, as you have invested rest ₹50,000 in PPF for saving tax.
But keep in mind that the lock-in period of ELSS mutual funds which are allowed to be claimed as a deduction under Section 80C is 3 years. In other words, these mutual funds cannot be sold before 3 years. ELSS is the least when compared with the 5-year lock-in period of the other popular tax saving instruments like PPF Account, National Savings certificate, Tax Saving Fixed deposit and giving better return on investment.
If you want to invest in ELSS, these are popular ELSS for 2017:
Tax benefits under Section 80C have an upper limit of ₹1.5 lakh. There are a number of schemes that take advantage of Section 80C besides ELSS mutual funds. The amount for tax exemption is calculated as a sum of investments under all such schemes or ₹1.5 lakh, whichever is lower.
For example: If you've spent ₹1 lakh on your children's education in a financial year, then that is the amount you can deduct from your taxable income.
Also, you've invested ₹1 lakh in ELSS mutual funds besides having spent ₹1 lakh on your children's education, you've spent a total of ₹2 lakh. In this case, you'll be eligible for a tax deduction of only ₹1.5 lakh.
To calculate monthly amount that is required for investing in ELSS, do the following
[1,50,000 - sum of all investments/expenditure done under section 80c elsewhere]/[no of months left in this financial year]
To know what all investments qualify in Section 80C, click here: Section 80C