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A Brand New Day
(Pallav Bagaria, Kvulo Lorin) (If you have any queries or would like more information then please feel free to email us at [email protected])  :  Dec/03/2017 04:57:PM
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(A weekly financial column covering financial basics)

What is the best option for you to save Taxes? 
WAditya, an IT professional, is an expert in advising clients on various system issues. However, when it comes to tax saving, he follows his father who has been religiously saving tax every year using Public Provident Fund (PPF).
It was only last week that Aditya’s notion of PPF being the best tax saver was broken when he met his childhood friend Rajesh, a chartered accountant. With return filing season round the corner, their discussion turned towards tax planning. Rajesh asked him to consider Equity Linked Savings Schemes (ELSS) or tax saving mutual funds, as they are commonly referred to, for the purposes of tax savings. Read on to know how ELSS is the best tax saving solution:
1.Tax Benefits – Both ELSS and PPF are eligible under Chapter VI-A of the Income Act 1961 for tax benefits. Any amount invested in ELSS and PPF is exempt from income tax, subject to amaximum ceiling of Rs. 1,50,000 per year across all the eligible deductions. As such, one can be indifferent towards ELSS or PPF on the basis of this criterion only.
2.Performance – Returns on PPF account are fixed by Govt. of India on a quarterly basis and hence guaranteed in nature just like fixed deposit interest. The rate currently notified for PPF accounts for the quarter ending 30th September 2017 is 7.8% per annum. 
On the other hand, the returns from ELSS depend on the performance of the stock markets during the invested period. Accordingly, it can vastly vary. However, equity markets tend to perform well over the longer term. Though not guaranteed, a tax saving mutual fund has the potential to deliver superior returns as it invests in equities. Highlighting the historical outperformance of ELSS category of mutual funds over PPF, here is how it has performed over various time periods against PPF:
Time PeriodReturns given by ELSSReturns given by PPF
1-year19.70%7.90%-8.10%
3-year11.30%8.10%-8.70%
5-year12.80%8.70%-8.80%

3.Taxability of Returns – Interest received on PPF Account is exempt in the hands of the account holder as per the provisions of Income Tax Act 1961. Similarly, the gains accruing from investment in ELSS are also exempt from tax since ELSS comes under the category of equity oriented funds. As such, the consideration for both the investment avenues on account of taxability of returns also should be neutral.
4.Lock-in Period – A PPF account has to be operated for a minimum period of 15 years. On the other hand, ELSS comes with a lock-in of 3 years, which is the lowest among the category of tax eligible investments. Further, in case you wish to remain invested, you can still choose not to redeem your investments as per your convenience. As such, ELSS provides you with the flexibility and liquidity, after the preliminary 3-year lock-in period. 
With the lowest lock-in period and the potential for better returns, ELSS indeed emerges as a wise investment choice when compared to PPF.  



 
 
 
  • A Brand New Day
    (Pallav Bagaria and John Rungsung) (If you have any queries or would like more information then please feel free to email us at [email protected]) : Dec/10/2017 06:50:PM
 
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