Tax Savings through Mutual Funds

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Tax Savings through Mutual Funds

Tax Savings through Mutual Funds. The aim of any smart tax saving investment should be to beat inflation and give a reasonable return at a certain date in the future when the investment is to be encashed. The longer the term for which the deposit is locked out of your reach the greater should be the expected return on investment.  That is why Savings Bank account interest rates are lower than others. You can withdraw cash from this account at any time (possibly subject to a minimum balance in the account) without having to worry about a sudden reduction in rates.

Tax Savings through Mutual Funds

A Mutual Fund is one such instrument which requires a small deposit but allows you to gain a foothold in the lucrative securities market.

A Mutual Fund is a pool of deposits by a large number of shareholders to form a single corpus which can then be invested in various financial market instruments such as stocks, bonds, G-secs and other assets. The worth of a particular Mutual Fund can be measured by its Market Capitalization.

The M-cap of a fund is the market value of all the assets that make up the fund’s portfolio. Mutual Funds are managed by financial experts who choose which assets are worth investing in. They are still subject to market risks and speculation may not always be to the benefit of the small investor. So, we recommend care and diligence when selecting the proper fund.

Nevertheless there are several unique tax benefits associated with investing in Mutual Funds. These are listed below:

Salient Points and Tax Saving Features of MFs

Section 80C of the Income Tax Act, 1961, allows various investments which qualify for income tax exemption such as Insurance schemes, PPF, EPF and National Savings Certificates. These schemes have a lock-in period of 5 years ordinarily.
An Equity Linked Savings Scheme is a type of Mutual Fund that has at least 65% of the funds invested in equity instruments but with a lock-in period of only 3 years.

How is My Income Tax Return Processed Get Details

 

Tax Saving Limit on Investments under 80C

You qualify for income tax deductions to the tune of Rupees 1.5 lakh in one assessment year for the aggregate of all investments made under Section 80C. This deduction stands for the year in which the investment is made. Dividends which get disbursed from a Mutual Fund periodically would also qualify as tax exempt income (Section 10(35)).

Note that, according to Section 10(34) any dividend received from an Indian Company is tax exempt so long as the income generated through this avenue remains less than Rupees 10 lakh in a financial year. Dividend Distribution taxes levied on the company will now compensate for this loss of revenue to the exchequer.

A Note of Caution

Considering that forms of investment other than ELSS offer returns at rates of under 10%, the former is a great way to make significant returns on your savings without incurring the risks associated with unschooled trading in securities. Remember that  securities trading is a zero sum game. If you make money today it is always at the expense of someone else.

What are SIPs?

Tax Saving through Mutual Fund

Further, if you do wish to invest in an ELSS fund, do it through a Systematic Investment Plan (SIP), as experts will tell you. You can make a series of monthly deposits instead of a large initial expense and still enjoy the benefits of economies of scale within the equity market.

There are also Debt Mutual Funds which invest a major portion of their portfolio in fixed-income-investments such as bonds.

Capital Gains Tax Benefits on MFs

The last important thing to note about tax savings on Mutual Funds is that if these funds are sold at their Net Asset Value (NAV), a daily fluctuating parameter, within a year of acquiring that fund, short-term capital gains tax at the rate of 15% will be chargeable.

On the other hand, long term capital gains arising out of the sale of an MF held for longer than a year will accrue no tax at all.

You can gain the maximum savings on your income by taking assistance from professional experts at AllindiaITR, one of the leading income tax return specialists in the market. AllindiaITR is owned and run by Corwhite Solutions Private Limited.

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All India ITR
All India ITR, one of India’s leading tax prep websites offering personal tax solutions focussing on income tax return filing through tech platforms, be it the web, Android or iOS, is dedicated to making tax returns as easy and convenient and yet as complete as possible. With value added services to help maximise tax savings and minimise tax outgo and tax investment advice the comparative advantage of specialization allows us to uniquely serve our clients. All India ITR is certified to conduct E-return intermediary services by the Income Tax Department of India.

5 COMMENTS

  1. Great work by ITR team it really nice to explaing everything about taxes.
    Thnx for this this really help me alot.This blog is really helpfull for us to know more about tax saving. This tell us everything that we should know about ITR. This is like a algorithm to fill taxes becaute it tell us step by step how we should fill taxes and yes it is also easy to understand. It tell breifly and accurately about taxes. The best thing about this blog is that we can get every information hear only. we shoud not go on different side to search about itr. It’s really great that u take initiative to tell people about this and your way of representation of thought is really good.We can understand out problem very easily and get our answers faster.Great keep it up.

    working of mutual funds?

  2. After reading this whole blog, I came to know about mutual funds and tax saving techniques In my opinion this is one of the best blog for providing the all information regarding every kind of tax filling in such a easy way that every common people can understand.
    I just want to know whether SIP or lump sum better for ELSS ?
    Thank you for providing such a great information.

  3. I found this blog to be really helpful to know more about mutual-funds. Great work by All-India-ITR team it really nice to explaining everything about mutual-funds. This blog is really helpful for us to know more about mutual-funds. It tell briefly and accurately about mutual-funds. these simple words will be helpful for each and every person to go through it.This tell us everything that we should know about mutual-funds. The best thing about this blog is that we can get every information hear about mutual-funds. we should not go on different side to search about mutual-funds. It’s really great that u take initiative to tell people about this and your way of representation of thought is really good.We can understand out problem very easily and get our answers faster. Thanks for this this really help me alot. Excellent team work by All India ITR.

  4. After reading this whole article I know the various way to save our tax through mutual funds we can able to sell our mutual funds alwawys at NVA net value asset, And through SIP systetmatic investment plan can make a series of monthly deposits instead of a large initial expense and still enjoy the benefits of economies of scale within the equity market. but I want to know one thing if we are investing in bonds rather then shares then what will be the rates they charged?

  5. Amazing blog has really helped me alot. This really helps and tells a process that is required to fill up an Income tax return. This blog tell us step by step how we should fill taxes and yes it is also easy to understand. Each and every details have been mentioned in simple and clear language.
    i would prefer anyone to have a eye on it to clear all their doubts. The best thing about this blog is that we can get every information hear only. we shoud not go on different side to search about itr. Great work keep it up.It tell breifly and accurately about taxes. The blog is very detailed and the way it explains us about the tds and its importance is what alot of people dont know about, every thing is very easy to understand and to retain it really helps a person on how to fill up the ITR and how to enquire about it. Great work from ALL INDIA ITR since it is a very well written and a very useful blog. I have one question though why will a middle class person invest in mutual funds beacuse its risky to invest in them.

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