Myth : Invest in ELSS & Save 33,660

It is surely wonderful to see a saving of 33,660 in a year, especially if it is saving on Income Tax. However, before you get swayed by the huge number, here is a reality check:
a. You need to have a taxable salary > 10 lac to realise the full savings. Else, the savings change to 30,600 for salary > 2.5 lac, 20,400 for salary > 1.5 lac & 10,200 for salary > 1 lac. Please note that the slabs would change a bit for women & senior citizens, but you get the point.
b. You need to invest entire 1 lac in ELSS. If your salary is 2 lac and you are investing 1 lac to save tax of 10,200 - I'm sure your attitude towards savings needs a standing ovation.
c. There is an implicit assumption that you are not salaried & thus do not contribute to PF. Remember that PF contribution also counts towards 80C & reduces the 1 lac by the relevant amount.
d. There is another implicit assumption that you do not have any insurance policy. Remember again that Insurance premium also counts towards 80C & reduces the 1 lac by the relevant amount.
e. There is a final assumption that you are not investing anything towards other savings such as NSC or PPF. Remember that these also count towards 80C & reduce the 1 lac by the relevant amount.

So, lets do some hard numbers.
a. Your taxable salary is 1.5 lac (as per Form 16)
- Your basic is around 45,000 (rest is allowances & perks)
- Your PF contribution would be 5400 (80C contribution)
- You have insurance of around 15 lac (term policy)
- Your insurance premium would be around 4500 (80C contribution)
- You do not have any NSC or PPF contributions
- You pay tax of 4090 (after 80C deduction)
- You can invest any amount in ELSS, but get tax benefit on 40,100
- You have saved 4090 (100% of your tax, but 12% of promised savings)
b. Your taxable salary is 2 lac (as per Form 16)
- Your basic is around 60,000 (rest is allowances & perks)
- Your PF contribution would be 7200 (80C contribution)
- You have insurance of around 20 lac (term policy)
- Your insurance premium would be around 6000 (80C contribution)
- You do not have any NSC or PPF contributions
- You pay tax of 12607
- You can invest any amount in ELSS, but get tax benefit on 86,800
- You have saved 12852 (100% of your tax, 37% of promised savings)
c. Your taxable salary is 2.5 lac (as per Form 16)
- Your basic is around 75,000 (rest is allowances & perks)
- Your PF contribution would be 9000 (80C contribution)
- You have insurance of around 25 lac (term policy)
- Your insurance premium would be around 7500 (80C contribution)
- You do not have any NSC or PPF contributions
- You pay tax of 22134
- You can invest any amount in ELSS, but get tax benefit on 83,500
- You have saved 17034 (77% of your tax, 51% of promised savings)
d. Your taxable salary is 3.5 lac (as per Form 16)
- Your basic is around 1.05 lac (rest is allowances & perks)
- Your PF contribution would be 12600 (80C contribution)
- You have insurance of around 35 lac (term policy)
- Your insurance premium would be around 10500 (80C contribution)
- You do not have any NSC or PPF contributions
- You pay tax of 49031
- You can invest any amount in ELSS, but get tax benefit on 76,900
- You have saved 23531 (48% of your tax, 70% of promised savings)
e. Your taxable salary is 5 lac (as per Form 16)
- Your basic is around 1.5 lac (rest is allowances & perks)
- Your PF contribution would be 18000 (80C contribution)
- You have insurance of around 50 lac (term policy)
- Your insurance premium would be around 15000 (80C contribution)
- You do not have any NSC or PPF contributions
- You pay tax of 91902
- You can invest any amount in ELSS, but get tax benefit on 67,000
- You have saved 20502 (22% of your tax, 61% of promised savings)
f. Your taxable salary is 12 lac (as per Form 16)
- Your basic is around 3.6 lac (rest is allowances & perks)
- Your PF contribution would be 43200 (80C contribution)
- You have insurance of around 1.2 cr lac (term policy)
- Your insurance premium would be around 36000 (80C contribution)
- You do not have any NSC or PPF contributions
- You pay tax of 321161
- You can invest any amount in ELSS, but get tax benefit on 78,000
- You have saved 7001 (2% of your tax, 21% of promised savings)

There are many assumptions in this representation, however, the idea is to help you realise that the 33,660 figure is nothing but a mirage. Next time your agent tells you you can save 33,660 by investing in ELSS (or even ULIP, as the calculations apply in the same manner), ask him/her to demonstrate the same based on your salary and other financial details.

Note: It is quite likely that you have adjusted your basic to be too low or have taken a very low insurance cover (thanks to your agent selling you a non-term policy). At the same time it is quite likely that you have included other 80C items in your portfolio for diversification (PPF, NSC, 5-Yr FDs). In all likelihood, 90% of the tax-paying folks would be well-served by this representation.