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Tax Treatment for Equity Linked Savings Scheme (ELSS)

Equity Linked Saving Scheme is an open-ended equity growth scheme that is offered by mutual funds in line with existing ELSS guidelines. The investments under this type of scheme are subject to a lock-in period of 3 years and, as per the Finance Act 2005, are allowed the benefit of income deduction up to Rs. 1,00,000 under Sec 80C of Income Tax ACT . 

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

     ELSS = Tax Benefits + Long Term Capital Appreciation
1. When you make investment in ELSS Fund
 Your taxable income is reduced by the amount of investment made subject to a maximum investment of Rs. 100,000,means you get tax deduction under section 80C of income tax act.

2. When you earn income in the form of Dividend 
Dividends received from ELSS funds are also exempt from tax, as  ELSS Funds are mainly Equity Schemes, so there is no dividend distribution tax, so dividend is tax free in the hands of investors.

3. When you Redeem ELSS mutual fund units- Tax Treatment on Maturity of Investment in ELSS Fund
AS you know ELSS Funds are locked in for three years, so after three year when you sell ELSS units, they are considered as Long Term investment and currently long term capital gains are tax free.


  1. Accounting Tax ServicesNovember 24, 2012 at 2:51 PM

    Thank for good information provided form your side.Tax Treatment for Equity Linked Savings Scheme.Thank you so much

  2. I invested Rs 50000 in 2009, now my investment market value is Rs 80000. Rs 30000 is non taxable because it is long term capital gain.
    How about my investment of Rs 50000. Do I have to now declare it as taxable income since I did not pay tax on this income in 2009 when I claimed it under Sec 80 C.

  3. No tax is to be paid for redemption of units of an equity scheme held for over a year. Elss comes under lock in period of 3 years, so no tax on principal amount or on capital gain on sale of those units.
    If you want to mention in return file, no harm in it as will not attract any tax.


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