A Comprehensive Guide to Tax Savings and Mutual Funds

As we approach November, it’s the perfect time to plan for your Section 80C savings. Today, we’ll discuss two schemes, the Equity-Linked Savings Scheme (ELSS), the new debt fund taxation, and why debt funds are still a good investment. We’ll also touch upon dividend taxation and provide a simple table on tax.

ELSS - A Tax-Saving Instrument

Investment schemes like ELSS offer tax deductions on your investment up to Rs 1.5 lakh under Section 80C. Mutual funds provide tax exemptions on long-term gains from your income. While it’s common for investments in tax-saving schemes to surge in March, many IT companies and other firms collect tax-saving proof from their employees in December and January. They calculate the tax amount and deduct TDS accordingly. So, if you start investing in a tax-saving scheme now and submit the proofs, you can avoid excess TDS deduction.

Consider starting an SIP in a tax-saving scheme like Mirae Asset Tax Saver or Kotak Tax Saver. These have given returns exceeding 25% over the past three years due to the bullish market. Generally, returns from ELSS range from 12% to 16%.

Debt Funds - A Safe and Income-Generating Investment

Debt funds have become popular among Indian investors over the past few years due to their safety and income-generating potential. The Central Government announced some key changes in the tax treatment of debt funds in the 2023-2024 budget.

Section 50AA, introduced in the financial year 2023-24, prescribes a method for taxing income from certain mutual funds. This section applies to any mutual fund that invests less than 35% of its total income in domestic company stock markets.

Tax Simplification

The new tax policy has simplified the taxation of mutual funds. Whether it’s short-term or long-term, all gains from specified mutual funds will be considered as short-term capital gains and will be taxed at your regular income tax rates, which could be lower than the long-term capital gain rate.

Despite the new tax policy, investing in debt funds is beneficial. You don’t have to pay tax annually like in bank deposits; you only pay tax on the gains after you sell your investment.

For more detailed information, please refer to my Tamil chapter here. You can also check out HDFC’s Tax Reckoner for FY 2023-2024 here.

If you’re interested in sponsoring or making ELSS investments, feel free to reach out to me. Let’s plan your taxes wisely!

For Detailed reading about this taxation of mutual fund topic in Tamil refer below

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நீங்கள் ஒரு மியூச்சுவல் ஃபண்ட் முதலீட்டாளரா? உங்கள் முதலீடுகளை திறம்பட நிர்வகிப்பதற்கான நுண்ணறிவுகளைத் தேடுகிறீர்களா? மியூச்சுவல் ஃபண்டுகளுக்கான எங்கள் விரிவான புத்தகத்தின் 12வது அத்தியாயத்தை அறிமுகப்படுத்த நாங்கள் மிகவும் உற்சாகப்படுகிறோம்,

"வரி " என்ற தலைப்பில் உள்ளது. விரிவான pdf  பெற தொடவும்

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Read More

To read the other chapters in English of the proposed book in mutual funds using the following links

Chapter 1 - What is Mutual funds

Chapter 2 - Why Mutual funds

Chapter 3 - Understanding Mutual Fund Categories

Chapter 4 - Equity funds

Chapter 5 - Debt Funds

Chapter 6 - Hybrid Funds

Chapter 7 Others - Goals / ETF/ FOF

Chapter 8 Choose MF

Chapter 9 SIP

Contact us to get the actual book previews in Tamil, all contents free without any locks!

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