Tax Planning

We all want to save our hard earned money and we look to invest in various traditional tax saving instruments falling under Section 80C like Bank FD, NSC, PPF, etc. to save tax. One of the best and the most popular ways to save tax is investing in ELSS Mutual Funds.

What is Tax Planning?

Tax planning basically involves analyzing one’s financial situation in order to plan it in the most optimized manner. Tax planning helps a taxpayer to understand the use of various deductions, permissible allowances, concessions, rebate, exemption and benefits such that their tax liability can be reduced in a financial year. In other words, tax planning helps you reduce income tax liabilities in a legal way. However, one must understand that importance of tax planning and management must not be misused or used for tax evasion.

Tax Planning in India

There are several tax saving options for all the tax payers in India. These options allow a tax payer to avail a wide range of deductions and exemptions that may help them in reducing the overall tax liability. The deductions are listed in Section 80C through 80U of the Income Tax Act. The deductions are made against the quantum of tax liabilities and can be claimed by taxpayers. In addition to this, there are more sections that can help reduce your tax liabilities such as tax credits and exemptions.

Types of Tax Planning

1. Short and long- range tax planning: While short -range tax planning is made at the end of the fiscal year, long-range planning is done at the start of the fiscal year.

2. Permissive tax Planning: Permissive tax planning conforms to the laws of taxation.

3. Purposive Tax planning: Purposive tax planning is made with an objective in mind. This sort of planning often misleads the law.

Objectives of Tax planning

  • Reduction of Tax Liability: Scope of tax planning enables you to save maximum amount of money from tax within the limits of law.

  • Productivity: Productivity is one of the most important objectives of corporate tax planning as it allows you to channelize your taxable income to different investment plans.

  • Reduced litigation: Tax planning ensures that there is minimum friction between the collector and the taxpayer. Method of Tax planning ensures that the compliance of tax payment is followed properly.

  • Boosts economy: Tax planning helps in generation of white money that can be used for the betterment and growth of the citizens. This eventually helps boost the nation’s economy.

  • Stability: Proper tax planning ensures improved economic stability of the business.

What is ELSS Mutual Fund?

ELSS full form is Equity Linked Saving Scheme. ELSS funds are saving schemes that help you save up to Rs. 1.5 lakhs in a financial year under section 80C of Income Tax Act. ELSS mutual fund can be taken by people from any profession.

ELSS scheme not only helps people save money on their tax payment but also incur profit through equities.

Step by step process to invest in ELSS Funds

ELSS investment can be done by following the given steps.

  • Step1: Open a bank account if you don’t have one

  • Step 2: Analyse your taxable income and taxable slab

  • Step 3: Choose an Asset Management Company (AMC)

  • Step 4:  Select suitable ELSS mutual funds scheme

  • Step 5: Decide your intermediary

  • Step 6: Decide whether lump sum or SIP

  • Step 7: Redemption of ELSS mutual funds

    You can utilize the ELSS calculator to understand if you are making the right decision while investing in ELSS.

What are the advantages of an ELSS fund?

ELSS mutual funds offer several advantages making it one of the best tax saving schemes.


  1. Tax Saving: ELSS tax saving scheme is much better than other schemes

  2. Lowest lock-in period: ELSS  has a lock-in period of three years as compared to the minimum five years lock-in period of other tax saving schemes.

  3. Less tax on gains:  ELSS fund has a minimum lock-in period of 3 years, so, gains from sale of ELSS funds will be long-term in nature.

  4. Uses compounding: Investors can benefit from the power of compounding in the long-run.

  5. Redemption after 3 years not mandatory: Investors can opt for redemption only if they are happy with the returns from their respective ELSS mutual funds.

  6. High returns: As ELSS funds invest in equity schemes, the returns are higher compared to other tax saving schemes.

  7. Avail SIP: Investors can choose SIP option and invest a fixed amount at regular intervals.

  8. Transparent and safe: ELSS investment is safe as all companies come under purview of SEBI and have to make necessary disclosures.

Features of Equity Linked Savings Scheme (ELSS)

Key ELSS features  are mentioned below: 

  1. You can invest as little as Rs 500 per month and can invest as much as you. However, Tax benefit will only be available on maximum of 1.5 lakhs.

  2. You can invest in an ELSS scheme either online or offline.

  3. You can invest a lump sum amount or opt for SIP.

  4. Minimum lock-in period for ELSS is 3 years which is better than most tax saving schemes.

  5. ELSS mutual fund schemes invest in diversified equities such as small cap, mid cap and large cap.

  6. ELSS funds have proven to give highest returns to investors amongst the tax saving schemes available on the market.

  7. Expense ratio for most ELSS funds varies from 2-3 %.

  8. Does not have entry or exit load

  9. ELSS funds are the best for the long term as equity investments.

How to invest in ELSS?

  • Get your KYC done: KYC is mandatory if you wish to start ELSS investment. You will have to submit your address proof along with an in-person verification process.

  • Form: The application form can be obtained from a distributor, AMC or downloaded from the mutual fund house website. You can invest either directly or through a mutual fund distributor.

  • Amount: You can invest minimum Rs. 500 and there is no maximum limit. However, the tax deducted is either 1.5 lakhs or the amount invested in that financial year (whichever is lower).

Importance of ELSS

ELSS funds can be invested by people from any economic background.

  • Enables long term financial growth

  • Can be invested using SIP

  • Investment can be done online as well

  • Minimum lock-in period of just 3 years

  • Best ELSS funds will give you higher returns than traditional tax saving options

  • Power of compounding interest

Tax benefits of ELSS

ELSS tax saving funds offers several benefits such as: 

  • ELSS mutual funds fall under the ‘EEE’ category which means that the returns and maturity amount you get are tax exempted.

  • You can invest up to Rs.1.5 lakhs in ELSS funds and get tax benefit in a financial year. However, if you invest more than Rs.1.5 lakhs, you will not be eligible for tax exemption on the excess amount.

  • Tax saving of up to Rs.46,350 can be made by investing Rs.1.5 lakhs if you fall in the income tax slab of 30% (including 3% cess). However, do understand that tax saving may differ depending on applicable tax slab and according to u/s 80C of the Income Tax Act.

Frequently asked questions

Why do we need tax planning?

Tax planning is needed because it helps a taxpayer minimize the payable income tax and improve savings.

What are the benefits of tax planning?

Tax planning has several benefits such as;

  • It lowers the amount of payable income tax
  • Lowers tax rate
  • Allows better control on paying taxes
  • Maximizes available tax relief/credits

What is tax planning and tax management?

While tax planning helps a taxpayer reduce the tax liability, tax management deals with filing of returns, deducting tax at source, getting accounts audited, etc.

What is the difference between tax planning and tax avoidance?

Tax planning involves financial activities that can help a tax payer avail maximum tax benefit. On the other hand, tax avoidance involves techniques of refraining from tax liability through fair means.

How can I save tax?

Some of the basic ways of saving tax are;

  • Under Section 80C
  • o PPF

    o Life Insurance

    o ELSS

    o Fixed Deposits

    o NSC

  • Section 80D
  • Section 80CCD
  • Section 80CCD (2)
  • Section 80CCG

What is the primary purpose of effective tax planning?

The primary purpose of tax planning is to maximize a taxpayer’s wealth after tax wealth.

What are ELSS funds?

ELSS funds are tax saving funds in which most of the funds ae invested in equity schemes.

What is the lock-in period?

ELSS has a minimum lock-in period of 3 years.

What is the maximum tax benefit that can be availed by investing in ELSS every year?

One can avail tax benefit of up to Rs. 46,800 by investing up to Rs.1.5 lakhs per year under section 80C. However, if you invest more than Rs.1.5lakhs, you will not get tax exemption on that excess amount.

Why to invest in ELSS?

ELSS offers more benefits than other traditional tax saving schemes such as NPS, FDs, etc. Also, it has a minimum lock in period of just 3 years and higher returns than other schemes.

Who should invest in ELSS?

A person from any economic background can invest in ELSS. It is an equity investment and is more suitable for people who are willing to risk and stay invested for long period of time.

Is there any tax associated with ELSS?

The gains after the lock-in period of 3 years are considered as long-term gains and are taxed at 10% for gains above Rs.1 lakhs.

What are equity funds?

They are schemes that have a major investment in shares of companies of different capitalization.

Should I choose SIP or lump sum?

In lump sum, one has to invest a huge amount at once while in SIP, you can invest a fixed amount periodically.

SIP is slightly more beneficial than lump sum as:

  • You can pay small amount every month without much hassles
  • Investing through -out the year will ensure you don’t end up paying too much
  • Is a disciplined way to achieve financial goal

How to invest in an SIP on Wisely Invest?

Follow these 3 simple steps to invest on Wisely Invest;

Step 1: Select the fund and suitable amount you wish to invest every month.

Step 2 : Enter your personal details and make the first payment

Step 3: Activate SIP for the rest of the months via the methods specified by us.

Why invest through Wisely Invest?

We work in the interest of our users and offer only the best performing mutual funds. Wisely Invest is also a simple –to-use portal that allows you to invest in the mutual funds of your choice in a short time.

How to invest in Mutual funds at Wisely Invest?

Follow these simple steps:

Step 1: We will look at your Portfolio

Step 2: Guide you on your Goals

Step 3: Help you select the right Fund.

Step 4: Provide your personal details

Step 5: Make the payment

Is KYC necessary?

Yes. It is a one-time exercise.

How much one should invest in ELSS?

You can invest minimum Rs.1000 and up to any amount that you can.

Is PPF better than ELSS?

Both are great tax-saving ways. However, a major difference between the two methods is that while PPF allows you to withdraw 50% of funds after 5 year lock-in period, ELSS allows you to withdraw completely at 3 years maturity. Also ELSS does not guarantee a fixed rate like PPF. You will have to weigh the pros and cons of both and take an informed decision.