Equity Linked Savings Scheme (ELSS) has been the second most talked about savings vehicles in India which also gives taxpayers deduction under Section 80C of the Income Tax Act. But the Union Budget 2018 is going to change its EEE status which means that interest earned or proceeds received from ELSS at the time of investment, accumulation as well as withdrawal are tax-free or exempted.

According to the Union Budget 2018, Equity Linked Savings Scheme (ELSS) will not offer tax-free returns and if the budget proposal to introduce 10 percent tax on long-term capital gains (LTCG) of over Rs 1 lakh goes through, which is highly likely to be the case, even these tax saving mutual funds will attract LTCG tax of 10 % on redemption.

Taxation of 10 percent on LTCG (Budget 2018)

ELSS qualify for tax deduction of up to Rs 1.5 lakh under Section 80C of the Income Tax Act in a financial year and a majority of investors were attracted to this savings vehicle mainly because of the shortest lock-in period among all the tax-saving investment options which are available under Section 80C as well as the tax free status.

That said, ELSS is still the toughest competitor of Public Provident Fund (PPF) as it offers more return in comparison while compromising a little on the security quotient and if you are looking to know all about investing in ELSS, here are some points you need to keep in mind before making the investment.

Investing In ELSS: Key Points To Remember

Opt For ELSS, If,

You are ready to take some risks and can invest for several consecutive years.

You have an insight into the share market.

You are not going to retire in the coming years.

The Risk Involved

Since ELSS (Equity Linked Savings Scheme) is an equity fund, the investments in the scheme are subjected to market risks.


Being market-linked, investing In ELSS means that returns can vary depending on the scheme selected as well as the market situation, but on an average, returns usually vary between 12-14%.

Tax Benefits

ELSS investments come under EEE (exempt-exempt-exempt) status for taxation, as of now, which means that the interest earned and proceeds received from the savings vehicle at the time of investment, accumulation as well as withdrawal are tax-free or exempted.

Lock-In Period

ELSS investments come with the shortest a lock-in period among its competitors, which is of 3 years but there is no option of premature withdrawals.

Investment Limit

An investor can invest any sum he/she wants in a financial year. However, tax deductions under Section 80C will be limited to ₹150,000 according to the Income Tax Act.

ELSS mutual fund investments have become a popular tax saving instrument and it is also ideal for wealth creation, retirement planning coupled with the benefits of having a lower lock-in period, rupee cost averaging risk, SIP (small investment) method of investment, as well as no tax on dividends and benefit of capital gains.

But after the approval of Union Budget 2018, dividends and benefit of capital gains from investing in ELSS will be taxable and this might make things little less intriguing for potential investors in India.

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