SIP Under 80C

If you are keen on tax saving and at the same time want to gradually build your wealth, then a Systematic Investment Plan (SIP) under Section 80C would be the wise option. We can get a clear insight of what a SIP under 80C is by simplifying it.

What Does SIP Under 80C Mean?

Section 80C of the Income Tax Act allows you to deduct up to ₹1.5 lakh per year for certain investments. SIPs (regular investments) in Equity Linked Savings Schemes (ELSS), which is a mutual fund investing mainly in equities, are eligible for this tax benefit.

 Why Choose SIP in ELSS?

Tax saving: You get a tax exemption on the amount you invest, up to ₹1.5 lakh, under Section 80C.

Lock-in period: The minimum lock-in period for ELSS SIP is 3 years, which ensures that you cannot withdraw your funds impulsively.

Potential high returns: As most of the money in an ELSS is invested in equities, you can look forward to good growth over the long term.

Flexible investing: It can be started with a small amount of ₹500 per month, thus allowing anyone to invest regardless of their income level.

Disciplined savings: Indirectly, SIP helps investors stick to the habit of regular investing thus it (regular) investment will help in averaging your investment cost.

Quick Example

Let's say you decide to put ₹10,000 each month in ELSS SIP for 12 months. The total annual amount would be ₹1,20,000. This is the amount you can entirely use to get deductions under Section 80C resulting in lowering your tax payable by your amount. Someone in the 20% tax bracket can achieve tax saving up to ₹24,000!

Summary in Bullets

Only ELSS mutual funds SIPs qualify for tax-saving purposes.
The total deduction limit under 80C is ₹1.5 lakh per year.
The three-year lock-in period applies to ELSS investments for each SIP installment.
Minimum SIP amount generally starts at ₹500.
In order to avail the deduction, one needs to have proof of investment (investment certificate or account statement).