Save tax while accumulating wealth

WE HAVE WAITED FORWARD tax reforms in every EU budget. None of us, regardless of profession or salary, benefit from the tax bite. As soon as your salary crosses the base limit for taxation, you start looking for ways to stem outflows and bring home as much of your CTC as possible. What if we told you that you could save tax while accumulating wealth? This is exactly what you can achieve by investing in equity-linked savings schemes, or ELSS. This investment option allows you to benefit from the high growth potential of equities while benefiting from tax refunds of up to 1.5 million euros per year.


Eligible for tax deductions under Section 80C of the Income Tax Act 1961, ELSS mutual funds are a great choice when you want to save tax. The asset allocation for ELSS provides that at least 80% of the entire corpus should be invested in equity and equity-related securities such as listed shares, while the remainder can be placed in fixed income. Additionally, because ELSS funds come with a lock-up of only three years, they can be a great alternative to other longer duration instruments that fall under 80C. Since you can start investing with as little as $500, ELSS can act as your long-term investment plan to save taxes and accumulate wealth.

In addition to the fund’s tax benefits, ELSS also offers you the opportunity to participate in the growth of your country’s economy and stock markets. This is especially possible if you choose to invest through the Systematic Investment Plan (SIP) option as you will be allocating money at regular intervals through the ups and downs of the market. This ensures that you reap the benefits of Rs cost averaging and capitalization, allowing you to both save taxes and make your money grow in the long run.


The main benefit of ELSS is the tax savings you can get from this investment. As per the provisions of the law, an investment of up to $1.5 lakh can be claimed as a tax deduction in a financial year. Let’s take an example to better understand the tax savings that can result from an ELSS investment.

Suppose you are in the highest tax bracket, but your income is less than $50,000 per year. You will pay taxes at the rate of 30% plus cess @ 4% of taxes paid. Now, if you invest $1.5 lakh in ELSS, let’s see how much money you can save by minimizing your tax expenditure.

Tax + Cess = 30% + 4% of 30% = 31.2%

Amount invested = Rs1.50 lakh

Tax saving = 31.2% x Rs 1.50 lakh

= Rs46,800

The calculation above makes certain assumptions to arrive at a tax savings figure of $46,800. Nevertheless, it will still give you an idea of ​​how much tax expenditure you can save by investing in ELSS.

While ELSS undoubtedly offers the benefit of tax savings, it also offers additional benefits.

The potential for long-term wealth creation:

While the lock-in period for ELSS is three years, leaving your money in ELSS funds for longer can allow you to benefit from the long-term growth opportunities offered by equities.

SIP for Discipline and Savings Habits:

When you invest in an ELSS, you also have the option of investing through regular SIPs. This means that you invest a fixed amount monthly or quarterly, thus ensuring you have good planning for your tax savings. Plus, the benefits of rupee cost averaging, capitalization, and disciplined investing will also benefit you in the long run.

So if you’re looking for a way to save tax while growing your wealth, ELSS is a way to fight inflation while staying one step ahead of the tax monster. Choose wisely and you have a winner at your fingertips!

The author is a mutual fund distributor.

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