Is ELSS the best investment option to save taxes and build wealth? Gauri Chadha explains

Is ELSS the best investment option to save taxes and build wealth? Gauri Chadha explains

“If you stay invested for a long period, you get around 12% to 15% of return which is much much higher than other tax-saving options,” says Gauri Chadha, a tax expert.

Is there a chance of the ITR filing deadline being extended this year as well?
I think it should be extended although I feel it will be extended sometime near the 31st July due date only; the reason being that the government would want more and more returns to be filed as soon as possible. I feel it will be extended because of the AIS and the 26AS, which are the most essential part of the return filing. They were updated in mid-June and so effectively, we got only 1.5 months to file returns, and professionals who are handling hundreds and hundreds of returns cannot file so many returns in just 1.5 months. So there are chances of course, but not anytime soon.

However, if you are filing your return on your own, I don’t think that you should wait until the last minute. Secondly, the portal is also giving some problems. It is not working very smoothly. There are days when the portal is down and another reason is that I feel that the due date will be extended but then, I do not wait until the last minute, and maybe we will get a notification towards the end.

What should one keep in mind while filing the income tax return, I mean any important documents they should have, any common mistakes that the taxpayers should avoid while filing the return?
First is the Form 16 if you are salaried and form 16A if you are on a contractual basis. These are very important documents. Then you must check your AIS and 26AS which is very important because now AIS is showing all the information related to your PAN so you just cannot skip your AIS.

We check their 26AS and AIS and see whether they have capital gains or not. Taxpayers must check the AIS and 26AS apart from that they should have the bank statements ready, any other entries like any income from other sources.

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If there is an error in your AIS, you can send feedback and rectify it. These are the important documents. Apart from this, have all the receipts and slips and for the deductions, investments that are done under 80C, 80D, or any other section, and rent receipts if you are claiming your HRA or 80GG. Your return should match your AIS and 26AS especially. Apart from this, while paying your tax, you should select the right assessment year and financial year. People usually get confused between which assessment year we are talking about and which financial year we are talking about. So you should choose the right assessment year while paying the tax because if you do not choose the right assessment year, your tax will go to some other assessment year and, of course, you should enter your right PAN as otherwise you will go into someone else’s account.

Even if your TDS is deducted, you must file your return because it is compulsory to file the return. If you have changed your job during the year and you have got two form 16s, people tend to skip one form 16 or maybe they think that we will get the benefit of the standard deduction and 80C, which is not true. You will get the deduction only once and you have taken both the form 16s into consideration and then pay the tax. Also, don’t forget to e-verify the return. If you do not e-verify your return or verify manually whatever suits you better, it is assumed that you have not filed your return. You must file your return and then e-verify it within 120 days of filing the return.

ELSS is fast emerging as a popular investment to save tax. It helps you to get the twin benefits of wealth creation and tax saving in one investment. Do you think ELSS is the best investment option to save taxes and build wealth?
I feel ELSS is the best option, especially for the young generation. Since the lock-in period is a minimum that is just three years which is nothing in comparison to PPF, PF,

, etc. Whenever you need that money after three years, you can redeem it and use it as per your wish. Moreover, if you stay invested for a long period, you get around 12% to 15% of return which is much higher than other tax-saving options.

So according to me, ELSS is the best scheme and, like you said, you also save tax under this if you claim deduction under 80C. So there are many benefits but, of course, if we are talking about someone who is a senior citizen or super senior citizen then maybe ELSS would not be the right fit. But if we talk about people who are just starting their career or someone who is in the mid-40s and 50s, ELSS is the best option.

What about your top two best-performing ELSS funds?
Axis and Mirae. Both are good tax-saving funds. They have given consistent returns and very good returns even when the market falls they do not crash like anything so they are not very aggressive funds but they will give you a consistent return over years. When we invest in ELSS or any other equity fund, stay invested for at least four to five years even if the ELSS lock-in is for three years even then we say that stay invested at least for five years. I am expecting good returns out of these funds.

Since the appraisal season is also here, people are getting more money to spend but then they have to pay more taxes also. How to plan the investments to save taxes?

First is the common section which is 80C where you can claim your ELSS, PF, EPF, LIC, ULIP, children’s tuition fees, housing loan principal repayment, etc. Then comes your 80D which is your medical so you can claim your medical under Section 80D. Then HRA benefits you can claim if you are staying on rent and if you are not claiming HRA, then you can go with 80G which is another section for claiming rent but the upper limit of claiming this is just Rs 60,000. Then comes section 80E which is your education loan. If you have taken an education loan and you are prepaying it, the interest you are repaying to the bank or anyone can be claimed as a deduction under 80E.

If you have purchased any house on EMI and you are repaying the loan, the interest part will go under Section 24 and the principal part will go under Section 80C, so you can claim your benefit under the housing loan repayment also. I will give some tips to pay zero tax because if you come just a little below Rs 5 lakh, you have to pay zero tax. And as soon as you cross Rs 5 lakh you have to pay at least Rs 12,500 as tax. So if you are near about Rs 5 lakh, you can give some donation under Section 80G and you can come below Rs 5 lakh and you will have to pay zero tax. This is a tip for people who are earning somewhere around Rs 7-10 lakh. Above that, this would not work but if you are within Rs 10 lakh, then you can claim this benefit of 80G.

How can one save tax on the sale of equity shares or mutual funds and also how should one deal with capital gains from equity mutual funds?
Before 2018, there was no tax on equity-oriented mutual funds or equity on the sale of equity and equity-oriented mutual funds but in the 2018 budget, they came out with a tax of 10% and gave a deduction of Rs 1 lakh. So if your profit is till Rs 1 lakh, there is no tax. If you cross one lakh there is a tax of 10%. So you get a deduction of one lakh every year.

There is something called the rolling concept, where you can redeem your funds every year and reinvest those funds in the same fund or same stock on the same day so that you get the same NAV or the same price and you can book profit. So, when you book this profit of one lakh towards the end of every year and when you sell the shares or mutual funds, you will not have to pay tax on this every year which you were claiming. Every year, you can show one lakh profit in your return and claim that benefit.

Also, the sale of equity shares and sale of equity-oriented mutual funds comes under Section 54F which is the sale of any capital asset other than residential property. If we talk about section 54F and you sell your equity shares and buy a residential house with the net proceeds then you can get away with the taxation and you don’t have to pay any tax but of course, there are conditions.

The conditions are that the assessee should not have more than one residential house when you purchase this house and you can purchase this house one year before or two years after and you can construct this within three years. Another condition is that you must transfer the proceeds of the capital asset to the capital gain account scheme before the return filing date if you have not invested the same in the residential house. Also, you cannot sell this house within three years or you cannot purchase another house within three years of purchasing this residential house or constructing this residential house. So there are a few conditions but of course, you can save your capital gain tax on the sale of your equity and equity-oriented mutual funds by using this rolling concept or using section 54F.

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