Budget 2024: How Mutual Fund Investors Can Gain from 80C Raise

In the upcoming Budget 2024 presentation on July 23, Finance Minister Nirmala Sitharaman is considering an increase in the Section 80C deduction limit. If implemented, this adjustment would particularly benefit investors in Equity Linked Savings Scheme (ELSS) mutual funds by providing them with greater avenues for tax savings and opportunities for their investments to grow.

The proposal to raise the Section 80C deduction limit originates from the current Rs 1.5 lakh cap, which was set in 2014 when Arun Jaitley served as Finance Minister.

Archit Gupta, CEO of Clear, supports the revision of the stagnant Section 80C limit, noting it has failed to keep up with inflation since 2014. He argues that an adjustment would help taxpayers offset inflation's impact and encourage savings and investments in critical financial tools such as ELSS, tax saver FDs, and PPF. Gupta believes this change would contribute to enhancing financial resilience and prosperity throughout India.

Siddharth Maurya, Founder & Managing Director of Vibhavangal Anukulakara Private Limited, emphasizes the government's urgent need to consider increasing the Section 80C limit in the upcoming budget. He argues that this overdue adjustment is crucial to providing relief to the middle class, who are struggling with rising expenses and inadequate tax exemptions. Maurya believes that a higher limit would reduce tax burdens and promote savings and investments essential for personal and national financial progress. Furthermore, he suggests that it would channel more funds into critical sectors like insurance, PF, and ESOPs, thereby strengthening financial markets and aligning with current economic conditions.

Preeti Zende, a Sebi-registered investment advisor and founder of Apna Dhan Financial Services, argues that raising the LTCG limit for deduction from Rs 1 lakh to Rs 3 lakh would offer substantial relief. She also criticizes the new tax imposed on debt mutual funds, stating that it hampers their growth. Zende suggests either reversing this tax or, at the minimum, reinstating the indexation benefit for debt mutual funds, echoing the sentiments of investors seeking favorable changes in taxation policies affecting these investments.

Equity Linked Savings Scheme (ELSS) funds are highly favored by salaried individuals and the self-employed as top investment options. They provide substantial tax savings under Section 80C of the Income Tax Act, depending on the invested amount.

ELSS funds stand out as the sole mutual funds eligible for tax deductions under Section 80C of the Income Tax Act, 1961. Investors can avail deductions of up to Rs 1.5 lakh by investing in a range of tax-saving options.

Features of ELSS Mutual Funds

Short Lock-in Period

ELSS Mutual Funds stand out with a remarkably short lock-in period of just three years. This duration is notably shorter than other investments eligible under Section 80C of the Income Tax Act.

Tax-Exempt Gains

One of the most appealing features of ELSS Mutual Funds is the tax exemption on gains. This means that the returns you earn from your investments are entirely free from tax implications, allowing for potentially higher net returns.

High Earning Potential

By primarily investing in equity markets, ELSS Mutual Funds offer investors the opportunity for significant growth and returns over the long term. This equity exposure provides the potential for higher earnings compared to traditional fixed-income investments.

Tax-Free Withdrawals

Another advantageous feature of ELSS Mutual Funds is that withdrawals are tax-free. Unlike many other investment options where withdrawals may be subject to taxation, ELSS Mutual Funds allow investors to enjoy their returns without worrying about additional tax liabilities.

Conclusion

ELSS Mutual Funds combine tax-saving benefits with the potential for high returns through equity investments, making them a versatile choice for investors looking to optimize their tax planning while aiming for substantial growth in their investment portfolios.