As the name suggests, an ELSS is a Mutual Fund scheme which invests at least 65% of its corpus in equity and equity linked products to avail of tax benefits for investors. The minimum 65% investment is mandatory for the fund to avail of exemptions under the long-term capital gains tax rules of the Income Tax Act.
As an individual investor, you can invest up to Rs. 1.5 lakh each year via the ELSS route to avail of tax benefits under section 80CC of the Income Tax Act. For this, you should also stay invested for at least three years, which is called the lock-in period for these schemes. If you want to withdraw your investments within three years of making the investment, you have to forgo the tax concessions that you had availed of.
Benefits of investing in ELSS schemes:
- Investments in ELSS schemes are eligible for tax exemption u/s 80 CC upto Rs 1.5 lakhs.
- Lock-in period of 3 years as compared to 15 years in PPF or 5 yrs in FD’s.
- Returns earned from ELSS schemes are absolutely tax free in hand.
- ELSS schemes give you higher returns in long term as compared to other tax savings options, as they are invested in equity related instruments.
ELSS comparison with other tax saving instruments: