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Does SIP offer tax-saving benefits?

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Does SIP offer tax-saving benefits?

Yes, SIP can help you save tax if you invest in tax-saving Equity Linked Savings Scheme (ELSS) mutual funds. ELSS mutual funds offer tax deductions of up to ₹1.5 lakh under Section 80C of the Income Tax Act.

Does SIP offer tax-saving benefits?

By investing in ELSS mutual funds through SIP, you can spread your investments over time while still enjoying the tax benefits. It's important to ensure that the total of all your SIP investments within a financial year does not exceed ₹1.5 lakh, as investing more won't provide any additional tax benefit under Section 80C.

For example, if you start an SIP of ₹12,500 per month from April 2022 to March 2023, your total investment for the financial year 2022-2023 would be ₹1.5 lakh, making you eligible for the maximum tax benefit of ₹1.5 lakh under Section 80C.

However, timing is crucial. If your SIP starts late in the financial year, like in May 2022 in the example provided, the last installment may fall outside the financial year. In such cases, your total investment for that financial year would be less than ₹1.5 lakh, and your tax benefit would be accordingly reduced.

Understanding the tax-saving benefits of SIP investments in ELSS mutual funds can help you plan your investments strategically to maximize tax savings while achieving your financial goals.

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