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If Mr. ABC's taxable income is 3Lakh, then his auditor tells him he needs to pay 22,000Rs tax in FY 2018-19. So if he invests 50k or 1 Lakh in ELSS Mutual funds, than how much tax he will save?

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Please find the tax calculation for FY 2018-19 and AY 2019-20

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IN your case 250,000 is charged at 5% and 50,000 at 20% assuming 0 Investment in ELSS. Incase of investment of 50,000 in ELSS , 250,000 is calculated at 5%

  • Thanks, If i invest 50k , i can save 23400-13000 = 10,400 , but if i invest 100k [1 lakh ] , than i can save only 23400-10400 = 13,000 , so only 2600 rs more for extra 50k , can you please tell me what is the formula to calculate this ? – USer345738380 Jan 11 at 9:27
  • @USer345738380 have added tax slabs and the rates at which they are charged – onkar Jan 11 at 10:04
  • you are gold, I understood clearly..... – USer345738380 Jan 11 at 10:13
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In your case, in order to pay no tax, you would have to bring down your taxable income to zero. Section 80C provides a maximum investment possibility of INR 1.5L. While there is no upper cap on how much you can invest in ELSS funds, it is important to note that since your deduction is limited to INR 1.5L, there is no reason for you to invest beyond 1.5L in ELSS Funds. You can calculate the corpus amount of your ELSS Investments on our ELSS Calculator.

However, you should also try and invest 50K annually in NPS. This will further reduce your tax liability by 2500 Rs. NPS is a very good retirement investment option.

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This old question shown a common mistake made by many that rush to save their tax instead of inspecting the cost and risk of those "funds" they mentioned.

Most active managed mutual funds around the world usually bait the investor with best case scenario prospectus, which the purchase price rarely match the existing market price for the investor.

In fact, India ELSS (Equity-Linked Savings Scheme) is NOT a real saving scheme, but a typical misleading created by the lobbyists to bait illiterate investor. On average, India ELSS annual cost is 2.0%, which charge upon the NAV (Net asset value). Whether making money or losing money, those funds will siphon 2% of the net asset value.

To counter the losses from the 2% NAV cost, the funds MUST yield an annual return of at least 15%. In fact, around the world with no exception of India, few mutual funds are able to make the record.

If Mr.ABC cannot find alternative investment scheme such as index fund ETF with an expense ratio lower than 0.5%, you will see his money put into ELSS going to shrink 2% per annum.

(update) Why [expense ratio1 for mutual funds affect investment returns? Let's check the simple calculation of how NAV affect the actual

  • 8% return (80) - 2% fees(21.6) = 58.4 (5.84%)
  • 8% return (80) - 3% fees(32.4) = 47.6 (4.765)
  • 12% return (120) - 2% fees(22.4) = 97.6(9.76%)
  • 12% return (120) - 3% fees(33.6) = 86.4(8.64%)

What if end of the year the fund losing money, but the fee remains. Your assset will shrink and make the next year gain lower than you imagine.

  • loss 5% (50) + 2% fees (19) = 69 (6.9%), asset = 931
  • loss 5% (50) + 3% fees (28.5) = 78.5 (7.85%) asset - 921.50
  • You are right, but for some beginners, i felt investing in elss is much better then keeping in FD, so that if we get atleast 8% return, that's going to be awesome..... – USer345738380 Jul 4 at 9:10
  • @USer345738380 8% return after MINUS 2% of Net Asset ? – mootmoot Jul 4 at 9:12
  • don't consider about Nav cos t[ 2% ] means if we invest for 1 lakh, we should get 1.08 lakh in hand [ after one year ] – USer345738380 Jul 4 at 9:21
  • @USer345738380 The market is volatile. Bear in mind that you can NEVER get the 8% as shown by the prospectus because you just cannot lock the right price when buying the fund. If 8% is the "best case", imagine the time you are buying the fund. – mootmoot Jul 4 at 9:32
  • That's true , may be we get less or more than 8 % in elss funds, as we kept for 3 years deposit , hopefully we are expecting atleast 8 % as it is better then FD & also it save some amount of tax..... – USer345738380 Jul 4 at 9:35

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