Dhaval Kapadia, Director, Portfolio Specialist, Morningstar Investment Adviser (India) answers queries in The Financial Express, from where the below has been taken.
Just like investments in life insurance, do I get tax breaks under Section 80C for investing in any mutual fund schemes?
- Arvind Rao
Yes, there are two categories of mutual funds, namely equity linked savings schemes, or ELSS, and notified retirement funds, that provide tax breaks on investments under Section 80C of the I-T Act, 1961. Investments made up to a total limit of Rs 1,50,000 per annum in these categories is deductible from your gross total income under Section 80C.
Additionally, the Rajiv Gandhi Equity Savings Scheme 2013, or RGESS, can be used for claiming deduction in the computation of total income, in consideration of investment in eligible securities, under sub-section (1) of Section 80CCG of the Income Tax Act, 1961.
The tax deduction in terms of RGESS guidelines will be offered to a ‘new retail investor’ who complies with the conditions of the RGESS and who has a gross total income for the financial year in which the investment made under RGESS is not more than or equal to Rs 12 lakh. The maximum investment allowed for claiming deduction under RGESS is Rs 50,000. The investor will be eligible to get a 50% deduction of the amount invested from the taxable income of that year u/s 80CCG. The benefit is over and above the deduction available u/s 80C. The investment should be made in listed equity shares or listed units of equity oriented mutual funds as stated in RGESS. The investment is locked in for a period of three years from the date of purchase with RGESS.
In ELSS, one can invest up to 100% in equities and have a lock-in of three years. Investments in ELSS can be made in lumpsum or SIP mode depending on the investor’s choice. Tax benefits would be available only in the financial year in which the investment is made and only on amount invested in that financial year.
Whereas notified retirement funds invest in a mix of equity and debt instruments in varying proportions ranging from 30% to 100%, in equity and the remainder in debt, during the accumulation or pre-retirement phase and typically up to 40% in equity during the post-retirement or withdrawal phase. Besides tax planning, the other important aspect about investing in these funds that you should consider is your risk appetite, since the underlying investment is in equities (in varying proportion) which tend to generate attractive returns over the long term (three to five years) but can be volatile over the short term.
