Monday, January 14, 2008

Tax Saving for free!

Yes, it's possible. As elucidated in this Economictimes article, you can save taxes via the Section 80C tax which provides for deduction of upto Rs 1 Lakh. We're talking about ELSS (Equity Linked Savings Scheme), a diversified equity mutual fund with a lock-in period of 3 years from the date of investment.

The strategy is pretty simple. Consider a case wherein Ramu has been investing in ELSS over the last say, 5 years. The ELSS investments made by him in the year 2005 are out of the lock-in period now in 2008. What this means is, he can reinvest the ELSS investment of 2005 in this year and still be eligible for the Section 80C deduction. So essentially, he hasn't dug into his pockets to invest for this year. Ramu can shift his 2005 ELSS money to a liquid fund and in a couple of days shift it back into the ELSS fund(which qualifies as a fresh purchase). The double whammy here is that equity mutual fund investments if done by the individual himself (that is applying for mutual fund purchases in person at the AMC office) attract no entry load. Thats a cool saving of the 2.25% entry load as well!

You can check out the best(preferably 5 or 4 star rated) ELSS schemes on Valueresearch

We call it "Aam ke aam, guthliyo ke daam" in India! So there you have it, tax savings for free. Works like a charm for poor people like me...

3 comments:

Ankur said...

people were doing the same with NSC

Anonymous said...

Thanx a lot!!It was really helpful as i'm investing for the first time to save tax

maYank said...

You're welcome! I'd appreciate if you comment on my blog with your name. Good luck!