What are the best Tax Saving Mutual Funds

Firstly, let us clarify the taxability of mutual fund returns under Section 10 of Income Tax Act. Under Section 10, all equity mutual funds held for more than one year are exempt from tax at the time of sale of the units. This is also known as long term capital gains. Equity funds from a tax standpoint are funds, where at least 65% of the assets of the funds are invested in equities. All diversified equity funds, ELSS funds, Balanced funds (where 65% of assets are in equities) are examples of equity funds from a tax standpoint and as such are exempt from long term capital gains tax under Section 10. Further, the dividends from equity funds are also tax free (under Section 10). In addition to Section 10 benefits, ELSS funds offer the additional advantage of tax savings under Section 80C, whereby investment in ELSS subject to the 80C limit (Rs. 1 lac) is eligible for deduction from your taxable income.

We have discussed top performing ELSS funds, based on a number of parameters, in our article, FY 2014 2015 Tax Planning: The top 6 Equity Linked Saving Schemes.