What is the maximum tax benefit that you can get from investing in ELSS funds?

What is the maximum tax benefit that you can get from investing in ELSS funds?

ELSS mutual funds, Equity Linked Saving Schemes, are a very popular mode of investment in the financial market. They give you various financial benefits making them an ideal tool for wealth creation to fulfill your financial goals. Whether you want to plan a fund for your child, for buying a house or a car, for planning your retirement, or simply for the sake of investing, ELSS funds can help you save, invest and get attractive returns. 

What are ELSS mutual funds?
ELSS mutual funds are equity-oriented mutual fund schemes that invest at least 65% of their portfolio in equity. They have a lock-in period of 3 years during which no redemption or withdrawal is allowed.

Top benefits of the ELSS fund

Here are some of the top benefits of the ELSS fund which you can avail when you invest in them –

  • ELSS helps you in saving tax on your investment
  • Since ELSS has a lock-in period of 3 years, it enables you to save in a disciplined manner for better returns
  • You get equity exposure by investing in ELSS funds. This helps you get good returns since equity has a high return generating potential.
  • You can invest through SIPs or in lump sum allowing you flexible and affordable investing options.

This is a summary of the top benefits of the ELSS funds in India.

Tax benefits from investing in ELSS 
As mentioned earlier, ELSS funds offer you a tax benefit on the investments that you make. Investments into the ELSS scheme qualify for tax deduction under Section 80C. The maximum deduction allowed under the section is INR 1.5 lakhs. That is why the ELSS Tax saving investment avenue is a great option. 
By investing in an ELSS scheme, you can lower your taxable income by claiming the deduction. This reduction of taxable income also reduces your tax liability. Let’s have a look at the maximum tax saving benefit which you can get by investing in ELSS funds –

So, you can save a maximum tax of INR 45,000 if you are in the highest tax bracket and you invest INR 1.5 lakhs in the ELSS fund. Isn’t ELSS tax saving investment avenue?

Tax benefits from investing in ELSS under the new tax regime
From the new financial year 2020-21, there is another tax slab that you can use to calculate your tax liability. The tax slab has lower tax rates. However, it does not allow any deductions or exemptions which you can avail of in the existing tax regime. The new tax regime is optional and you can choose to file your taxes in either the new regime or in the existing one as per your choice. However, if you choose the new tax regime, the deduction on ELSS investments under Section 80C would not be allowed. Even if you invest in the ELSS fund, your investment would be considered as a part of your taxable income and it would be taxed in your hands. Thus, the new tax regime does not offer tax benefits on ELSS investments.

Tax benefits on ELSS returns
Now that you know the tax benefits on ELSS investments under both the tax regimes, let’s have a look at the tax payable on the returns that you earn from ELSS funds.
ELSS returns are called long term capital gains since you were invested in the scheme for more than 12 months. Such gains are subject to a tax of 10% if they exceed INR 1 lakh. So, if your ELSS returns in a financial year are up to INR 1 lakh, you would not have to pay any tax on them. However, if your returns exceed INR 1 lakh in a financial year, 10% tax would be payable on the excess return which is over the limit of INR 1 lakh.
ELSS tax saving investment tool which not only helps you create wealth, it also gives you tax benefits. So, understand the maximum tax saving which you can get from ELSS schemes before you invest in them.

About Nidhimehra


I am blogger with more than 5 years of experience in writing investments and mutual funds I write about investments and mutual fund investments ideas and scopes and help people to understand and choose beeter plans and investments for them , which will suites their requirements.

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