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 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

All tax-saving options are accompanied by lock-in periods. These usually range from three to fifteen years.

An ELSS is at the lowest extreme of this spectrum...only three years.

On the other hand, our money may be locked in for 15 years in the case of the Public Provident Funds.

Of course, given that equities often perform better over longer periods, you may choose to remain invested in an ELSS beyond the 3 year lock-in.

3. Invest via SIPs

As with most mutual fund schemes, you can choose to invest via the SIP route, in an ELSS too. This will help you avoid the burden of investing a large amount towards the end of the financial year. It may also help you take advantage of market fluctuations.

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 above ₹ 1,00,000 are taxable at a flat rate of 10% (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 10%.