ELSS Funds: Removed from Section 80C for Investment for tax saving option

As per the Direct Tax code 2011 (applicable from 2012) ELSS Funds and Unit linked Investments Plans Schemes (ULIPS) are removed for investment in tax saving options.

Why this option is removed from DTC:

1. long-term capital gains on equity and equity-backed mutual funds remain untaxed.

2.  The approach towards the taxation is very much same

As under the Direct Tax Code 80C will be applicable to

Provident Fund

Public Provident Fund (PPF)

New Pension Schmes (NPS)

Term Insurance

But Market regulator Sebi and mutual fund houses have asked the finance ministry to continue with the tax benefits on equity linked schemes in the Direct Taxes Code, which will replace the existing Income Tax Act.

SEBI has written to the CBDT that these are a product that is especially beneficial to small investors.

The draft DTC does not included ELSS as one of the instruments which will be subject to EEE mode of taxation.

Currently, ELSS comes under a method of taxation called EEE — wherein it is exempted at the points of investment, in the entire tenure of the investment and as well at the time of withdrawal.


Update: (April 1, 2012) ELSS option still available for financial year 2012-13
 

It said ELSS is not eligible for tax benefits under the DTC, but since the implementation of the new tax regime has been postponed, investors can park their funds in ELSS schemes of mutual funds

Union Finance Minister Pranab Mukherjee on Saturday (march 31, 2012) said that the long-awaited Direct Tax Code (DTC) would be rolled out from next year.

Union Finance Minister Pranab Mukherjee said

“Next year, I will introduce the DTC fully after examining the recommendations of the parliamentary standing committee. The recommendations of the parliamentary standing committee were available to me on March 9,”