Income Tax Exemption To Invest in ELSS Mutual Fund or Not?

Income Tax Exemption To Invest in ELSS Mutual Fund or Not?

With FY16 coming close to an end, in vestors looking to save tax under sec tion 80C of the IT act, could consider equity linked savings schemes (ELSS) amongst other funds for investment.

1. What is ELSS?

ELSS is a type of diversified equi ty mutual fund (MF), which is qualified for tax exemption under section 80C of the Income Tax Act. By in vesting in it, investor gets a twin-advantage of capital appreciation and tax benefits. It has a lock-in period of three years.

Investments of only upto Rs. 1,50,000 per financial year can be claimed as deductions.

2. How does ELSS compare with other tax saving options?

ELSS has the shortest lock-in period in comparison to other investment products like public provi dent fund (PPF) or National Savings Certificate (NSC).Dividend declared in ELSS funds is tax-free and no tax is levied on the long-term capital gains. However, risk factor is higher.

3. How can one invest?

You can make a lumpsum or one time investment in an ELSS fund or invest using the SIP route. You can invest as little as `500 per month and there is no upper limit.Financial planners recommend doing an SIP as it reduces volatility, and make you disciplined in tax planning.

4. For what kind of investors is ELSS suitable?

It is suitable for all types of investors who are not risk averse and need to invest in tax planning instruments. There is no age to get started in an ELSS.

5. How do I claim the tax benefits of ELSS funds?

In order to claim the tax benefits of ELSS funds, under section 80C, give a copy of your account statement to your financeHR team as a proof of your investment.

(6). Can I continue to hold my ELSS funds after lock-in of 3 years?

Yes. Financial planners recommend they consider ELSS as a part of their equity allocation and hold it to meet their financial goals.

Src: ET, Prashant Mahesh



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