Mutual fund investors prefer ELSS (Equity Linked Saving Schemes) since it is an ideal tax-saving product. Individuals who invest in ELSS can claim deduction of up to Rs 1.5 lakh in a financial year under Section 80C. In Budget 2020, the Finance Minister proposed a new tax system which makes it voluntary for taxpayers to claim these exemptions. Tax paying individuals will be given the option of paying lower taxes if they forego several deductions.
Since this proposed announcement, many discussions have been taking place in various media about how the new tax system will affect ELSS. Naturally, clients would also be making anxious calls to their financial advisors to know what should be their next step.
Since many years, ELSS has been regarded as an attractive tax-saving avenue which also provides the advantage of capital appreciation. Other tax-saving alternatives either have lengthier lock-in periods or are debt-oriented in nature. ELSS has produced favourable returns for individuals over the long term in comparison to other products when it comes to saving tax.
Experts believe that investors should stick to their existing plans and avoid making any last minute modifications in their investment portfolios. For the moment, advisors can help their clients in estimating their taxes and figuring out if the new tax regime is good for them. For example, the reduced tax rate slabs might be beneficial for individuals who are not able to save enough to invest and require more funds at their disposal.
In addition, clients who have SIPs scheduled in ELSS should also not make any changes. Financial experts must keep in mind that ELSS are essentially multi-cap funds. As mentioned before, these instruments can aid investors to multiply wealth and develop a fund to achieve long-term objectives. Therefore, discontinuing investments hastily whether your clients pick the old or new tax regime is not a clever idea.