Kolkata: ELSS, or equity-linked savings scheme, is one of the popular instruments for taxpayers who want to earn capital appreciation as well as save on taxes. ELSS funds have to maintain a minimum 80% investment in stocks. They can invest the rest 20% in other asset categories such as debt instruments. But what sets ELSS apart from other categories of mutual funds is the tax saving aspect and a lock-in period of three years.
The moot question is, do ELSS investments become taxable after the three-year lock-in period? Let’s explore. It is essential to understand the tax-saving benefit of ELSS funds to appreciate the answer of this question. According to Income Tax Act 1961, the maximum income tax deduction available on investment in ELSS is Rs 1.5 lakh. But it is for the financial year in which the investment is made in ELSS.
Now, once the lock-in period of three years gets over, ELSS units do become taxable. However, they become taxable only if they are sold and a gain is recorded. Unless ELSS units are not sold, they will not become taxable. Suppose an investor sells ELSS units just after the expiry period is over. If he/she does it, the gains thus made, will be subject to long term capital gains tax (LTCG).
These gains are taxable at the rate of 10% on the gains if the profits are more than Rs 1 lakh in one particular financial year. In case, the gains are less than Rs 1 lakh, they will not be taxed. However, foe ELSS investments that were made after July 23, 2024, the LTCG rate applicable will be 12.5% on gains, if any, made over and above Rs 1.25 lakh.
But what about taxes on the dividend? If one gets dividends from ELSS funds, they become taxable at the general income slab rate under applicable to that individual taxpayer. However, one should remember is that ELSS funds have the highest potential to generate returns among all the instruments mentioned under Section 80C of the Income Tax Act.
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Reducing income tax liability is one of the perennial concerns of the common man and many invest in ELSS (equity-linked savings scheme) which offer tax deduction under Section 80C of the Income Tax Act every year. But what happens later? Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
