Question

Assume you are pitching to a group of investors. Explain the tax matters associated with the proposed investment. Include the perspectives of tax advisor, customer and IRS officer.

Answer 1

Investors generally seek the plan which are tax saving and generate tax free income.

If the income earned is taxable , the scope to make money over the long run gets constrained as taxes will eat our returnes.

Suppose I pitch an investor for ELSS plan of a mutual fund. ELSS I. e. Equity linked saving scheme , are diversified equity with 2 differentiating feature.

One investment amount in them qualifies for tax benefits under section 80C of income tax act, 1961 upto a limit of 1.5 lakh a year, and

Secondly, the amount invested has a lock in period of 3 years. This is the shortest lockin period of any tax saving plan , the tax saving would be attraction for the investor.

Two options are available in this plan Dividend and Growth option.

Those who want a regular income can opt for Dividend option. It might not be aggressive but there is surity of return.

Most investors opt Growth option, which will yield tax-effective returns.

These are a true picture of ELSS, which will attract the investor for investments.

ELSS not only helps for saving a long term goal but also help in saving tax and generate tax-exempt income

Perspective of Customer

Customer- ELSS is a tax saving plan with a shortest lock in period. So, it is beneficial with the customer's point of view. At one place investor is saving his invested amount upto a limit of 1 .5 lakh. And at another place his amount would be blocked for shortest period.

He has a two options simultaneously first one is Dividend option which gives him a regular return for sure and if investor is ready to take risk he can go for growth option which will give him a good return; which would be a tax-effective.

Apart of this any dividend or long term capital gain earned by the investor is exempted from income tax.