Given below are the various options of Tax Saving Instruments under section 80C of the Income Tax Act. The table also compares them on various aspects like Rate of Return, Lock-in period and tax status on returns.

It is clear that tax saving instruments like PPF, NSC, Infrastructure/RBI Relief bonds, etc. hold low risk but offer little return with no flexibility and liquidity. Equity Linked Savings Schemes (ELSS) is the odd one out, carrying an inherent market-risk but at the same time offering market-linked returns albeit for ‘high’ risk. The lock in period is the shortest.

The risk level of ELSS is higher only when compared with the other tax saving instruments that fall under section (u/s) 80C. Considering a lock in period of 3 years, the schemes provide a shield from short-term market volatility as fund managers can stay invested in fundamentally strong stocks regardless of short-term volatility. Market risk is reduced by the diversified investments of the funds collected under the scheme by the mutual fund.

ELSS schemes of Birla Sun Life Mutual Fund like Birla Sun Life Tax Relief ’96 have generated attractive returns for the investor apart from helping them with Tax Planning.

Know more about the ABCs of Section 80C and start with your tax planning for the year

Know more about Systematic Tax Planning

Section 80C of the Income Tax Act is the boon that outlines the rules of deductions from taxable income, no matter which tax bracket you fall under. As per the section, invest in the approved categories of investment and deduct that amount from the gross income – and lo! You now have a new ‘income’ amount to calculate your tax liability on. However, a flat ceiling of Rs. 1,00,000 is set for deduction for any Tax bracket. Here’s an illustration:

It is natural for any investor to to search for various income tax saving tips. While a lot of it depends on the individuals risk taking capability and return expectations, here’s a time – tested method of systematic wealth creation: An SIP in an Equity Linked Saving Scheme (ELSS).

The thought of Tax Planning often dawns upon the investor’s mind from the months of December to March and what happens is a lumpsum investment in the selected mutual fund scheme. Lump sum investments are susseptable to stock market volatility. SIP in an ELSS shields the investor from the stock market volatility to some extent.

Invest through an SIP. Relax from Tax....

A systematic investment plan in an ELSS allows an investor to invest fixed amounts in a scheme at regular monthly intervals. Following table and graphs show how an SIP helps shield the investor from market volatility

The SIP investor above ended up with more units, higher returns at a lesser average cost at the end of the 12 months irrespective of lesser investment amount.

The following Graph shows how a lump sum investment is susseptable to market volatility than an SIP investment.

Birla Sun Life Tax Relief ’96 offers the investor an option to invest through an SIP with a minimum SIP amount as low as Rs. 500/-

Securities Transaction Tax of 0.25% will be deducted by the Mutual Fund on redemption or switch from any equity oriented fund.

The introduction of section 80C, in the Union Budget 2005, has allowed investors to save tax by investing in Equity Linked Savings Scheme (ELSS) schemes on investments upto Rs.1 Lac. and at the same time avail the growth potential of equity markets.

The following table draws a comparison of the investment avenues available under Section 80C: