Investments in ELSS or tax-saving mutual fund schemes qualify for tax deductions of up to Rs 1.5 lakh under Section 80C of the Income Tax Act. Tax payers typically finalise their tax-saving investments in the last three months of the financial year (January-March), known as tax-saving season.
ELSS, which come with a mandatory lock-in period of three years, used to offer tax-free returns. However, after the re-introduction of LTCG tax in the budget, returns from them would be taxed. Long term capital gains from equity mutual funds abover Rs 1 lakh would be taxed at 10 per cent without any indexation benefit.
Equity investors are a worried lot after the LTCG tax returned. Many of them have been calling up their mutual fund advisors to ask if they should continue their investments. “After the budget, LTCG tax has been a topic of discussion among investors. There is a lot of confusion around it. Some investors think that ELSS has lost its tax-benefit because it will also come under the ambit of LTCG tax,” says Hapreet Singh, Founder, Vserv Capital Services.
He says that many direct investors who were planning to invest in ELSS are definitely falling for the confusion. “We saw a lot of direct investors coming to chase the returns in equity funds recently. This confusion will definitely hit the last minute investors who were planning to gain some extra returns and save taxes in ELSS,” says Singh.
Some mutual fund advisors say though the last minute calls are lesser this time, they are not sure about the reasons. “The calls and queries about last moment investments in ELSS may be less because of many reasons. LTCG and the confusion around tax-saving and taxation could be one and the volatility we are seeing in the market can very well be another reason for this,” says Neeraj Chauhan, CEO, The Financial Mall.
If you are also confused about the tax-saving status of ELSS schemes or how it will be taxed, here is the answer. “ELSS is essentially an equity scheme and the gains you realise from it will also be taxed at 10 per cent when it exceeds Rs 1 lakh in a financial year. But ELSS will still give you tax-saving benefits. You can still invest in it and claim tax deduction up to 1.5 lakh under Section 80C,” says Puneet Oberoi.
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