Tax Planning – The ELSS way

Author : Swaraj Swarajfinpro | Published On : 11 Feb 2024

The process of creating financial plans to pay taxes efficiently, complying with current rules and regulations, and simultaneously utilizing the government's allowed deductions and exemptions, such as Tax Saving Instruments to reduce the overall tax burden

Advantages of filing taxes

  1. Reducing tax liabilities: By utilizing the numerous benefits offered by the Income Tax Act of 1961, a taxpayer can reduce their tax burden and utilize the money they save to become ready for future necessities.


  1. Avoiding fines and interest: Taxpayers may incur penalties or interest if they fail to make their required tax payments before the filing date for income tax returns.


  1. Wealth creation: By strategically allocating their portfolio to tax-saving instruments, investors can generate wealth over long investment horizons. The risk and return characteristics of different tax savings investment alternatives vary.


  1. Liquidity: Liquidity should be considered while selecting an investment. Many tax savings plans are significantly less liquid than other tax savings plans. If you take your future liquidity requirements into account, you may make informed investing decisions.


  1. Make tax-efficient investment decisions: Different tax-saving strategies have different tax implications. By adopting prudent tax planning, you can select investments that minimize your exposure to taxes.


When is the best time to start getting ready for taxes?


The best time to start preparing taxes is at the start of the fiscal year. Often, investors hold off on making an impulsive lump sum investment in an ELSS to take advantage of the Section 80C deduction until March 31st, the end of the fiscal year. This approach is not a good one for the reasons that follow, among others:


 It is beneficial to start tax planning at the start of the fiscal year in order to maximize tax savings. This enables you to align your investments with your financial goals and arrange for all potential deductions under income tax legislation.


 There are other reasons to buy tax planning tools besides merely paying less in taxes. The investments will help us reach our long-term goals of creating wealth. As such, the later you begin investing in ELSS, the longer it will take you to acquire the corpus required for the long-term goals.


 Check out the advantages of utilizing mutual fund ELSS for tax planning as           well.


 When tax-saving investments are delayed until the last minute, salary limits are higher than when they are made in April and later. Your monthly ELSS SIP investment, if you had the highest tax rate, would be Rs 12500. This would allow you to deduct the allowed 1.5 lakhs by the end of the fiscal year. This may occasionally prevent you from being able to claim the deduction due to potential urgent expenses.


 A lot of companies have internal deadlines that are considerably ahead of the March 31 deadline for providing proof of tax-saving investments. If you wait until the last minute, you can see a sizable TDS deduction on your pay stub in February or March.


 Tax preparation done at the last minute may also lead to hurried, wrongly calculated, or erroneous decisions that could cost you the benefits allowed under Section 80C.


You have more time to choose the ideal tax savings investment option for your goals and risk tolerance when you plan your taxes well in advance. You should take your time examining the fund's and the fund manager's performance over a range of periods before investing in an ELSS. You should select a fund that has outperformed its benchmark index over long periods.

How should a tax budget be created?


Under the former tax regime, individuals and HUF were eligible for a tax deduction on Equity Linked Savings Schemes (ELSS) with a three-year lock-in term. Under Section 80C of the Income Tax Act, investors can deduct up to Rs 1,50,000 from their gross taxable income for the fiscal year by making investments in Equity Linked Savings Schemes (ELSS). There might be a total savings of Rs 46,800 if the assessee is in the highest tax bracket and pays @30% plus the 4% education cess. It's crucial to keep in mind that ELSS provides the opportunity to increase wealth and maybe save taxes under Section 80C.

An important note: Consult your financial guide or Mutual Fund Distributor for assistance if necessary. Plan for taxes well before the March madness arrives. Call 9993025625 or email us for consultation on ELSS at