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Which investment instrument allows for exemptions up to Rs. 1 lakh per annum under Section 80C?
- a)Tax Saving Mutual Funds
- b)National Saving Certificate
- c)Post Office Tax Saving Schemes
- d)Life Insurance Premium
Correct answer is option 'A'. Can you explain this answer?
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Which investment instrument allows for exemptions up to Rs. 1 lakh per...
Tax Saving Mutual Funds
Tax Saving Mutual Funds, also known as Equity Linked Savings Schemes (ELSS), are a type of mutual fund that allows investors to save tax while also providing an opportunity for capital appreciation. Here's why Tax Saving Mutual Funds allow exemptions up to Rs. 1 lakh per annum under Section 80C:
- Section 80C Benefits: Investments in Tax Saving Mutual Funds qualify for tax deductions of up to Rs. 1 lakh per annum under Section 80C of the Income Tax Act, 1961. This means that the amount invested in these mutual funds can be deducted from your total taxable income, resulting in lower tax liability.
- Lock-in Period: Tax Saving Mutual Funds come with a lock-in period of 3 years, which is one of the shortest lock-in periods among all Section 80C investment options. This allows investors to stay invested for a relatively short period while still enjoying tax benefits.
- Equity Exposure: Tax Saving Mutual Funds primarily invest in equities, providing investors with the potential for higher returns compared to traditional tax-saving instruments like Fixed Deposits or Public Provident Fund (PPF). However, it's important to note that equity investments come with market risks.
- Systematic Investment: Investors can benefit from rupee cost averaging by investing in Tax Saving Mutual Funds through Systematic Investment Plans (SIPs). SIPs allow investors to invest a fixed amount regularly, thereby reducing the impact of market volatility on their investments.
In conclusion, Tax Saving Mutual Funds are a tax-efficient investment option that offers the dual benefit of tax savings and potential wealth creation through equity exposure. By investing in these mutual funds, investors can avail of exemptions up to Rs. 1 lakh per annum under Section 80C while also participating in the growth potential of the stock market.
Tax Saving Mutual Funds, also known as Equity Linked Savings Schemes (ELSS), are a type of mutual fund that allows investors to save tax while also providing an opportunity for capital appreciation. Here's why Tax Saving Mutual Funds allow exemptions up to Rs. 1 lakh per annum under Section 80C:
- Section 80C Benefits: Investments in Tax Saving Mutual Funds qualify for tax deductions of up to Rs. 1 lakh per annum under Section 80C of the Income Tax Act, 1961. This means that the amount invested in these mutual funds can be deducted from your total taxable income, resulting in lower tax liability.
- Lock-in Period: Tax Saving Mutual Funds come with a lock-in period of 3 years, which is one of the shortest lock-in periods among all Section 80C investment options. This allows investors to stay invested for a relatively short period while still enjoying tax benefits.
- Equity Exposure: Tax Saving Mutual Funds primarily invest in equities, providing investors with the potential for higher returns compared to traditional tax-saving instruments like Fixed Deposits or Public Provident Fund (PPF). However, it's important to note that equity investments come with market risks.
- Systematic Investment: Investors can benefit from rupee cost averaging by investing in Tax Saving Mutual Funds through Systematic Investment Plans (SIPs). SIPs allow investors to invest a fixed amount regularly, thereby reducing the impact of market volatility on their investments.
In conclusion, Tax Saving Mutual Funds are a tax-efficient investment option that offers the dual benefit of tax savings and potential wealth creation through equity exposure. By investing in these mutual funds, investors can avail of exemptions up to Rs. 1 lakh per annum under Section 80C while also participating in the growth potential of the stock market.
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Which investment instrument allows for exemptions up to Rs. 1 lakh per...
Tax Saving Mutual Funds allow for exemptions up to Rs. 1 lakh per annum under Section 80C.
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Which investment instrument allows for exemptions up to Rs. 1 lakh per annum under Section 80C?a)Tax Saving Mutual Fundsb)National Saving Certificatec)Post Office Tax Saving Schemesd)Life Insurance PremiumCorrect answer is option 'A'. Can you explain this answer?
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