ELSS Calculator: Calculate & Save Tax on your Investments

Published On: 24-Apr-2020

ELSS (Equity Linked Savings Scheme) has been one of the available investment options under Section 80C, which allows a tax benefit of investment up to Rs. 1.50 lakh in a financial year. Further, besides the tax benefit, the taxpayers can also invest in ELSS to club their financial goals and tax plans. 

A picture containing meter

Description automatically generated

Given the lock-in period for ELSS investments, the taxpayers might not be willing to invest more than the ceiling limit under Section 80C. However, at the same time, it will be desirable that the taxpayers know the amount that can be expected over a period. To calculate such amount, the investors can either use ELSS calculators available on the internet or also calculate the future value of their ELSS SIP investments through a simple mathematical formula:

Future Value of your ELSS SIP = P [{(1+r)^n-1}/r] * (1+r),

Where P = Monthly investment in ELSS

r = Monthly Returns (Calculate expected annual returns/12 to derive monthly returns)

             n = No. of months of SIP investments (can also be calculated as No. of years X 12)

For example, if you invest Rs. 12,500 per month to avail of the total eligible deduction of Rs. 1.50 lakh in a year and you intend to invest in such funds for the next 20 years; the ELSS fund value after 20 years will be Rs. 1.25 crores (assuming the investments generate 12% annualized returns).  

The above ELSS return calculator formula, assuming the investments made at the beginning of the month, can be used to calculate the portfolio value with different tenors and different rate of returns. The below matrix provides an illustrative return matrix for different assumptions with Rs. 12,500 monthly investments:

No. of Years

Assumed Rate of Return

8%

10%

12%

14%

16%

5

₹ 9.25 lakh

₹ 9.76 lakh

₹ 10.31 lakh

₹ 10.90 lakh

₹ 11.53 lakh

10

₹ 23.02 lakh

₹ 25.82 lakh

₹ 29.04 lakh

₹ 32.76 lakh

₹ 37.06 lakh

15

₹ 43.54 lakh

₹ 52.24 lakh

₹ 63.07 lakh

₹ 76.61 lakh

₹ 93.57 lakh

20

₹ 74.12 lakh

₹ 95.71 lakh

₹ 1.25 crore

₹ 1.65 crore

₹ 2.19 crore

 

The above formula assumes that the SIP investment is made at the beginning of the month. However, if one makes the investments at the month-end, you effectively lose one month of returns over the period. As such, you can use the following formula:

Future Value of your ELSS SIP = P [{(1+r)^n-1}/r],

Where P = Monthly investment in ELSS 

r = Monthly Returns (Calculate expected annual returns/12 to derive monthly returns) 

n = No. of months of SIP investments (can also be calculated as No. of years X 12)

Using the same variables as the above example in this formula will help you to calculate the portfolio value to be Rs. 1.24 crores, if you make the monthly investments at the month-end. 

ELSS Tax Calculator

When one makes investments in ELSS, one gets eligible for tax benefits under Section 80C. As such, one can legally save tax by investing in ELSS. One can calculate the tax savings by investing in ELSS through the following formula:

Tax Savings = P * t,

Where P = Amount invested in a year, subject to a maximum of Rs. 1.50 lakh in a year for all eligible 80C investments together

t = Tax rate applicable to the taxpayer

For example, if one has invested Rs. 1.50 lakh in ELSS during a financial year, the tax savings are equal to Rs. 45,000 (assuming the tax rate applicable is 30%). For the sake of simplicity, the impact of applicable cess and surcharge are being ignored in the tax rate.

Since a penny saved is a penny earned, any tax savings result in effectively lower investments (net of the tax outflow saved). One can calculate the effective investments by subtracting tax savings from the actual amount invested. For example, if one invests Rs. 1.50 lakh in ELSS during a year and saved tax of Rs. 45,000, the effective amount invested is Rs. 1.05 lakh only.  

With the above calculations, one can genuinely feel proud about the effectiveness of their tax planning, while staying on the right track to achieve their financial goals. However, one must note that the above calculators assume a linear and constant return over the period. In reality, the returns tend to be volatile across different periods, and hence, the actual portfolio performance may vary. Happy investing!

Note – The tax provisions, as mentioned in the article, are as per the Finance (No. 2) Act 2019, and the tax laws may change in the future periods. You must consult your tax advisor for more details. 

Disclaimer: The chart/information shared above is for illustrative purposes only and should not be construed as advise. There is also a possibility of the expected event not happening or some other unforeseen event that may affect the future performance of asset class. Investors are requested to note that there are various factors domestic and global that can have impact on performance of the asset class mentioned in the article. Information given is available in public domain.