Which part of the SIP investments qualify for tax benefits?
Not all of your SIP investments are deducted on the basis of tax but the SIP investments that are made into certain instruments and markets have tax deductions under the Income Tax Act in India. There are some aspects of the systematic investment plans that are exempted from being taxed. The 2 aspects are as follows:
– Tax Saving Mutual Fund Schemes
– ELSSs – Equity Linked Saving Schemes
ELSSs – Equity Linked Saving Schemes
The ELSSs – Equity Linked Saving Scheme mutual funds are allowed for a tax deduction under the Section 80 C of the Income Tax Act. The investor can avail a tax exemption of Rs. 1.5 lakhs if they have invested money into the ELSS scheme. The Equity Linked Saving Schemes are a equity mutual fund schemes which are diversified. They have a minimum lock – in period of about 3 years before which the investor cannot withdraw any returns. How the ELSS funds work is that the money is invested into equity related markets and equities but the majority of investments are made into equities. A longer SIP investment period into the ELSS fund scheme will get you a higher return on investments. The investor also does not have to pay any taxes when if they have got any LTCGs – long term capital gains through the ELSS as they are also exempted from being taxed under the Income Tax Act in India.
Tax Saving Mutual Fund Schemes
The systematic investment plans also have funds that are specially known for tax benefits; they are the Tax Saving Mutual Funds. If an investor invests into the Tax Saving Mutual Funds, then they are subjected to getting tax exemptions under the Section 80 C of the Income Tax Act.
To avail SIP tax benefits, you can start with SIP investments in the following way:
KYC to provide your information to the company
To be able to invest into a SIP account, the first step that the investor has to take is to complete the KYC process. KYC is Know Your Customer and this process has to be completed so that the fund company has certain important details about you which are necessary for opening the systematic investment plan account. It is very basic information that the KYC asks like the potential investor’s name, address, date of birth, mobile phone number and other details necessary for the SIP. KYC registration websites and KYC agencies are there to help you complete the process. There is another easy way to complete the KYC; it is through linking your Aadhar card with it. The KYC website will get all the information they need from UIDAI – Unique Identification Authority of India. This eliminates the hassle of you filling in every detail. The process of linking it with your Aadhar card also saves a lot of time.
Verification of documents
The next thing that has to be done to start up your SIP is to upload your documents on the website so that they can be verified. You are to scan each document and upload it onto the website in the correct blanks. The document that has to be uploaded for the purpose of verification is the PAN card – permanent account number.
Inter personal verification
Now, the next step is that you need to set a date and time for your IPV and be prepared for it. The process of verification is very important to check if the person logging into your account is you or a hacker. So, it is done to eliminate the possibilities of that and be sure about the personal identification. Keep your PAN card and address proof handy as the insurer might ask for you to show it to them to verify. The investor has to pick a date and set a time with which they are comfortable to attend the verification. The intern personal verification is done through a video call. The investor needs to make sure that their webcam is functioning properly and that they have a strong internet connection so that the video call can process easily.
Make a SIP investment account
After the completion of the verification, the investor has to complete the account. The investor has to go to the website and make an account by clicking on the registration link.
Enter information and details
Now, the investor has to enter their details about their information on the bank that they have an account with so that the online SIP investment can be started with. Enter all the details correctly to avoid any problems.
Verification through OTP
After you, as an investor, enter your details, you will receive an OTP which is the one time password that you have to enter into while making the account to verify you contact. The OTP is received either through SMS on your cell phone or through an email on your email ID. Enter the OTP correctly and within the time threshold after which it will expire.
Log – in into your account
You can, now, log into your SIP investment account as it has been created.
You can start SIP investments
After starting up the account, the investor has to make certain selections regarding the SIP investment pan so that the plan can start. The selections are like the date of the SIP and the mutual fund that the investor wants to invest into are to be chosen in the last step.
Invest into SIP funds through ELSSs – Equity Linked Saving Scheme mutual funds or Tax Saving Mutual Funds to get great tax benefits, deduction or exemptions and save more money. Systematic investment plans allow you to save a lot of money and saving money on taxes just adds to the huge amount that you will be accruing through the investments that you make as they invest to save money through a systematic approach.