ELSS (Equity Linked Savings Scheme)

Equity Linked Savings Scheme (ELSS) is a diversified equity mutual fund in India that qualifies for tax deductions under Section 80C of the Income Tax Act. ELSS funds invest at least 80% of their corpus in equity and equity-related instruments, offering the dual benefit of tax savings under the Old Tax Regime and potential wealth creation through stock market exposure.

The key advantage of ELSS over other Section 80C options is its short lock-in period of just 3 years, the shortest among all tax-saving investments. Investors can claim deductions up to ₹1.5 Lakhs per financial year under Section 80C, and after the 3-year lock-in, the entire amount can be redeemed without restrictions. However, long-term capital gains (LTCG) above ₹1 Lakh from ELSS are taxed at 10% without indexation benefit.

Real-World Example If Priya invests ₹1,50,000 in an ELSS mutual fund under the Old Tax Regime, she saves ₹46,800 in tax (assuming a 30% tax slab plus 4% cess). After 3 years, if her investment grows to ₹2,20,000, she can redeem the entire amount. The ₹70,000 gain is subject to LTCG tax: the first ₹1 Lakh is exempt, leaving ₹0 taxable.