Equity Linked Savings Schemes

Advantages of an ELSS if you are opting for old regime of income tax

1. Dual Benefit

There are several options to save Income Tax. However, only a few, offer an opportunity to create wealth simultaneously. An Equity Linked Savings Scheme (ELSS) is one such option.

Dual Advantages of investing in an ELSS fund are:

A.) Save upto 30%* in Income Tax on an investment of upto Rs. 1,50,000 u/s 80C of the Income Tax Act.

B.) Build Potential wealth through the power of equities.

Unlike fixed income options like PPF and Tax-Saving Fixed Deposits, equity investing provides investors with an opportunity to gain from the performance of the underlying businesses owned by the specific ELSS.

*For assessees in the highest Income Tax Bracket

2. Short lock-in period

ELSS has a lock-in period of three years, which is among the shortest under Section 80C options.
There are several options to save Income Tax. However, only a few, offer an opportunity to create wealth simultaneously. An Equity Linked Savings Scheme (ELSS) is one such option.
There are several options available under Section 80C of the Income Tax Act, 1961 to help reduce taxable income. Among these, Equity Linked Savings Schemes (ELSS) are mutual fund schemes that invest primarily in equities and come with a mandatory lock-in period of three years.

3. Invest via SIPs

You may invest in ELSS through SIPs, which help spread investments over time and reduce the need for a lump sum at year-end. SIPs may also help manage market volatility through rupee cost averaging. Investors may choose to invest a lump sum in the ELSS category of any mutual fund regisrered with SEBI, enabling immediate participation in equity markets while availing potential tax benefits under Section 80C under old regime of Income Tax

4. Tax-friendly, in more ways than one

Of course, investing in an ELSS helps you save Income Tax u/s 80C.

However, given the 3 year lock-in, any redemption after this period means that any capital gain earned is automatically treated as 'long-term'.

According to current Tax provisions, long-term Capital Gains on equity above ₹ 1,25,000 are taxable at a flat rate of 12.5% (without indexation benefit).

In contrast, income earned in most other tax-saving options is taxed as per your income-tax slab. This could be more than 12.5% as per total taxable income.

Income Distribution cum Capital Withdrawal (IDCW) is taxable at the investor’s applicable income tax slab rate, plus applicable surcharge and health & education cess