How to Get Maximum Tax Benefits During Stock Market Slowdown?

The fall in stock markets is causing trepidation as Nifty hit the lower circuit, and trading halted for an hour today. The global panic about Coronavirus has been increasing ever since it started. On Thursday, WHO declared the new coronavirus a pandemic.

How the Market Reacted to the Global Coronavirus Panic?

India has been largely affected due to the pandemic, which is a major cause of concern for citizens nationwide. Government and Industry sources mentioned that India is facing a decline in government revenue and Economic Growth. The shutting down of Yes Bank and the increasing spread of Coronavirus is causing a meltdown in the markets as consumer demands have seen a fall, which is reflected in lower sales in hotel bookings, retail sales, automobile sales, etc.

At 9:30 am Friday (today), the BSE Sensex plunged 3,090.62 points or 9.43 per cent to 29,687.52, while the NSE Nifty was down 966.10 points or 10.7 per cent lower at 8,624.05.

Equities in other Asian markets went into a free-fall and it has witnessed the worst week since the 2008 global financial crisis.

The tourism sector has also been hit and the industry experts predict a 60% fall as a huge number of tourists have been cancelling travel and hotel bookings which is a major blow to the tourism sector in India.

Good News for Tax Savings

Just like every coin has two sides, the situation is good news for anyone looking to benefit from tax savings. If you are looking for tax savings then plan your Taxes in ELSS under the Section 80C of IT Act.

You can benefit from Equity-Linked Savings Schemes (ELSS) under Section 80C. You can choose between the dividend option or growth option. An investor can invest up to Rs.1.5 lakh as a lump sum or via SIP during the financial year to avail tax Deduction.

Benefits of Investing ELSS During Market Fall

Tax savings

You are eligible to deduct an amount up to Rs. 1,50,000 under the section 80C. ELSS is the only tax options that allow taxpayers to save tax and also earn long-term returns from the investment.

Continue investing for longer gains

ELSS Mutual Funds come with a lock-in period of 3 years, wherein investors continue to hold the fund for a long-term. This allows funds to perform well. Investors can continue to hold the scheme if it performs well as this would help you to meet your Financial goals.

Higher returns

Why ELSS is a best option? ELSS funds invest in equity schemes, it gives you higher returns up to 15-20% as compared to other tax savings options. From the lock-in period of 3 years, investors gain the benefit of ELSS with higher returns.

Lower tax on the returns earned

Any gains from the sale of ELSS funds are long-term in nature. As per the current law, your gains Rs. 1,00,000 will be taxable at the rate of 10%. But for a short term gain the Tax Rate is 15%. Therefore, ELSS requires lower tax expenses automatically.

Power of compounding

When you invest over a longer duration, your investment starts compounding. This means that when you earn returns on the returns earned by your investment, your money would start compounding. This helps you to build a large corpus over the long run with regular small investments.

Affordable

One of the most attractive parts of a systematic Investment plan is its affordability. One can invest an amount as low as INR 500, which enables a route to a large number of Indians to initiate into investments. So, one who can’t make a lump sum payment, can invest via a SIP in ELSS.

Best Performing ELSS Tax Saving Mutual Fund FY 23 - 24

*Above is list of ELSS - Equity Mutual Funds having net assets between 100 - 15000 Crore & managing assets since last 3 years. Sorted on returns of last 5 years annualized/CAGR Basis.

Conclusion

ELSS is the best option to opt for during a Market meltdown. Save tax by Investing in ELSS funds before 31st March 2020 and enjoy the maximum benefits in the long-term.