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Generally, investment under mutual funds does not yield any tax-saving benefit However, if you wish to avail the benefit of a mutual fund and also save some tax you can opt for ELSS( the abbreviated form for the equity-linked saving scheme) As the name suggests, Equity Linked Saving Scheme or ELSS is a type of mutual fund scheme that primarily invests in the stock market or Equity.

Tax benefit

Investments of up to 1.5 Lac done in ELSS Mutual Funds are eligible for tax deduction under section 80C of the Income Tax Act.

Lock-in Period

Compared to other tax-saving instruments ELSS has the shortest lock-in period of 3 years. You can sell your investment after 3 years, from the date of purchase.

If you have an ELSS SIP (Systematic Investment Plan), each installment has a lock-in period of three years, which means each of your installments will have a different maturity date.

But it is advisable to continue with the investment if the fund is doing well rather then selling it or stopping it after 3 years.

Risks involved in ELSS

Just because it is tax saving instrument we cannot overlook the risks. Since it’s a a mutual fund is subject to market volatility, fund managers performance, and other fund parameters.

While choosing ELSS fund, apply all parameters you would apply before buying a mutual fund.

Taxation on returns

ELSS has a lock-in period of 3 years. If you redeem the units, you receive long-term capital gains or LTCG. These gains are not taxable up to Rs. 1 lakh in one financial year. Any LTCG above this limit is taxed at 10% of the gains exceeding Rs. 1 lakh without indexation.

Time and mode of investment

Investment in the ELSS funds should not be done at end of the year just to save tax.

Hunt for a good performing ELSS fund and invest either through SIP (systematic investment plan) from the start of the financial year or lump sum if you can time market well.

This article is for information only and written as per the provision given under income tax law and finance act 2021. For any other information please contact on mail brijlavaniya@yahoo.com and WhatsApp 8879882025.

Author Bio

Chartered Accountant and an Operations Leader with over 6 years of experience in the tax and finance domain. I am currently the Head of Operations and a Founding Team Member at TaxBuddy.com, a leading online platform that provides tax planning and filing services to individuals and businesses. I View Full Profile

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One Comment

  1. Prachi Singh says:

    Investing in ELSS funds brings us more benefits, but investing through the reliable and trustworthy platform brings contentment to us. One of such platforms is FundsIndia, India’s Leading Online Investment platform with a large varieties of investment products.
    Tax season is no far from us, Sign up with FundsIndia today and experience your fruitful investment journey.

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