How To Start an SIP To Save Tax On Your Income

Investments can be made any time during the year, whether it is a tax saving investment or just to park your excess money in the market. The only problem arises when employers ask you to submit your tax saving plans a few months before the end of the financial year. Here are a few ways you can tackle this with SIP tax saving investment.

Last moment investment can lead to a lot of risks, like picking a wrong product for investment which will not give you the desired results. So, proper planning with SIP can help you to save your taxes as well as get the desired returns on your investment.

How SIPs can help you save tax

SIPs can be a good tax saving investment especially when you need to save a part of your income from taxes. With Systematic Investment Plan (SIP), you can save on your taxes and also get higher returns on your investment.

Under Section 80(C) of the Income Tax Act, 1961, investing in Equity Linked Savings Scheme (ELSS) through SIP enables you to claim a deduction of Rs 1.5 lakh from your taxable income. Whose income fall in the highest tax slab (30%) with SIP in ELSS they can save around Rs 45,000 per year.

Other than helping you to be a disciplined investor by inculcating the habit of auto-investment, SIPs also help you to plan your monthly cash in an effective way.

How to Save through SIP in ELSS

In order to encourage more participation and long-term investment in equity, the Government of India created this tax-deductible category of mutual funds. Along with the tax saving scheme, these ELSS funds also help in long term capital appreciation; thereby making this the most preferred option for tax saving as well as investment.

You can take the SIP route to invest in ELSS that helps you to benefit from rupee cost averaging on a longer horizon. Moreover, with SIP in ELSS you can invest as little as Rs 500 and increase on your investment whenever you wish to.

Who should invest in a tax saving fund through SIP?

Below is a list of individuals who can choose to invest via SIP for tax exemption:

• Tax saving funds like ELSS through SIPs are ideal for salaried individuals and first-time investors looking to build wealth while saving on taxes under Section 80C.

• Anyone planning to invest regularly and seeking long-term capital appreciation along with tax benefits should consider SIP in tax-saving mutual funds.

• It also suits those who want disciplined investing without putting in a lump sum.

• Investors with a long investment horizon, moderate risk appetite, and looking for a simple way to reduce taxable income can benefit greatly from ELSS SIPs.

Importance of Tax Saving Investment

Tax-saving investments are important for effective financial planning. They ease your taxable income and allow you to grow your wealth over time. By investing in tax-saving options like ELSS, PPF, or tax-saving FDs, you can claim deductions under Section 80C of the Income Tax Act, up to ₹1.5 lakh annually. These investments also encourage disciplined saving habits and help you plan for long-term goals like retirement, education, or home purchase.

Top Reasons Why You Should Invest in a Tax Saving Mutual Fund SIP

Here are the key reasons to choose to invest in a tax saving mutual fund SIP:

1. It provides tax deductions up to ₹1.5 lakh under Section 80C.

2. It allows you to invest in small, affordable amounts regularly, ideal for salaried individuals.

3. It also helps build wealth over the long term due to the compounding effect.

4. ELSS funds also have a shorter lock-in period of three years compared to other tax-saving options.

5. Moreover, SIPs average out market volatility and encourage disciplined investing. If you are looking to grow wealth and reduce taxes with minimal effort, SIPs in ELSS are a smart choice.

Start Tax Planning Early

It is always better to start your investment as early as possible in a financial year (month of April) rather than waiting till the end of the financial year and doing a lump sum investment.

This way you can avoid any last moment fanatic investment and also accumulate higher capital on your investment. With an Electronic Clearing Service (ECS) mandate, your SIP amount will be directly deducted from your bank account.

Conclusion

So, planning an SIP initially helps you to benefit from your financial year deadline, lessens the chances of not having enough to invest. Also prevents you from selecting an ill-suited financial asset.

These are few SIP tax benefits that you need to know. Other than these, one can also invest in SIP irrespective of the market volatility. This factor makes it a preferred choice over lump sum investment route.

While choosing your SIP scheme, it’s advisable to be clear about your financial goals, so that along with your SIP income tax benefit you can achieve your desired returns.

FAQs

1. Is SIP tax-free under Section 80C?

Only SIPs in ELSS mutual funds are tax-free under Section 80C. You can claim up to ₹1.5 lakh per year. SIPs in other mutual funds don’t qualify for this tax benefit.

2. Can I save tax with non-ELSS SIPs?

No, SIPs in non-ELSS mutual funds don’t offer any tax-saving benefits under Section 80C. Only ELSS mutual fund SIPs allow you to save on tax whil investing. Choose ELSS if you want both growth and tax savings.

3. How much SIP is tax-free in a year?

You can claim up to ₹1.5 lakh per year under Section 80C for ELSS and other tax-saving investments. Ensure your total across all options stays within this limit.

invest in SIP

For disclaimer, Click here