What are Tax Implications on ELSS?

Today, investors have several investment choices that offer dual benefits of valuable returns on investment and tax savings. One such popular investment scheme is the ELSS or Equity Linked Savings Scheme.
ELSS is a type of mutual fund that invests a major portion of the corpus in equity-oriented instruments.Being an equity fund, ELSS are known to provide valuable returns in the long-run. One of the significant features of ELSS is that among the other tax-saving investment options available in India, it has the lowest lock-in period of three years.So, if you are looking to get exposure to investment in the equity market and get tax benefits, ELSS can be an excellent investment choice. But, before we know more about ELSS tax implications, let us first know more about the ELSS features and benefits.

• ELSS funds invest at least 80% of the corpus in equity-related instruments.
• These funds help investors diversify their investments across industrial sectors and mitigate the risk.
• When you invest in ELSS, you have the flexibility to stay invested for as long as you want. However, there is a minimum lock-in period of three years. Experts recommend staying invested until the end of the lock-in period to avail ELSS tax benefits.
• You can either invest a lump sum amount in ELSS or invest through SIPs

Every Indian citizen is obliged to pay taxes to the government based on their income. However, not all Indians earn the same amount, pay the same amount of tax, as it is possible to reduce the tax liability by investing in the right investment instruments.The tax benefits from the total taxable income is covered under different sections of the Indian Income Tax Act, 1961. For example, Section 80C of the IT act allows a tax benefit to a limit of Rs. 1,50,000 for investment in specific tax-saving investment avenues like the life insurance policy, NPS (National Pension Scheme), ELSS, etc.Apart from the investment amount (the principal amount), the returns earned from your investment are also eligible for tax benefit. If you remain invested throughout the lock-in period, the returns are exempted from tax, provided the returns earned is less than one lakh Rupees in a financial year.However, if you withdraw the funds from the ELSS before the lock-in period or if the returns earned is more than Rs. 1,00,000 in a financial year, it is considered as Long-term Capital Gains (LTCG) and it is taxed at 10%.

• Visit to the income tax e-filing portal, and log into it to start the income tax returns filing process.
• Next, upload your Form 16 as provided by the employer on the online tax filing portal.
• Once you upload the form, the portal will automatically fetch your basic details. Next, look for the ‘deductions under Section 80C’ tab and click on the ELSS or Mutual Funds option.
• Enter the amount, i.e., Rs. 1,50,000 you have invested and press on the submit button. The online portal will register the same and your annual taxable income along with the tax benefit availed will be displayed on the screen.
• Finish the tax filing process as per the prompts from the portal and once you finish the process you will get an email confirmation from the Income Tax department to notify your tax filing request.

Note – The figures mentioned are for illustrative purposes onlyand are based on the assumption that the entire tax Section 80C quota of Rs, 1,50,000 is invested in ELSS. Final Word ELSS is an excellent investment option that acts as a vehicle to accomplish short-term to medium-term financial goals; the exposure to high-risk and high-reward equity market helps you get valuable returns while reducing your annual tax liability.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.