By Nick Investment · Updated 2026-10-28
The ELSS deduction now works only under the old tax regime. Who still benefits, how the lock-in really works with SIPs, and the mistakes people make in March.
An equity linked savings scheme (ELSS) is an equity mutual fund that must invest at least 80% in shares and locks your money in for three years. In return, under the old tax regime, what you invest counts towards the ₹1.5 lakh deduction long known as Section 80C.
For years, ELSS was one of the most popular ways to save tax, mainly because its lock-in is the shortest of the common options. The arrival of the new tax regime has changed who gets that benefit.
The new tax regime has lower slab rates but removes most deductions, including this one. It is the default: unless you choose the old regime, you are in the new one.
Whether the old regime is better for you depends on how many deductions you can claim. People with a home loan, HRA, full use of the ₹1.5 lakh limit and health insurance premiums are more likely to gain from the old regime. Many others pay less tax in the new one.
Work this out each year with your CA or the Income Tax Department's tax calculator before you invest for tax purposes. If the new regime is better for you, ELSS gives no tax benefit at entry.
The Income-tax Act, 2025 applies from 1 April 2026 and keeps the old-regime deduction under a new section number. Limits and conditions can still change in any Budget.
Before investing for tax, work out how much of the ₹1.5 lakh is already used. Suppose a salaried person's own EPF contribution is ₹7,000 a month, or ₹84,000 a year, and they pay ₹20,000 a year in life insurance premiums. That leaves ₹46,000. Under the old regime, an ELSS SIP of about ₹4,000 a month fills it. Anything more is simply an equity investment with a lock-in.
Every unit is locked for three years from the day it is bought. With a lump sum, that is simple. With a SIP, each monthly instalment has its own lock-in date.
Say you run a ₹5,000 SIP from April 2026 to March 2027. The April instalment becomes free to redeem in April 2029, and the March instalment only in March 2030. If you continue the SIP for more years, some units are always still locked.
When the lock-in ends, nothing happens automatically. The units simply become free to redeem. You don't have to sell them, and selling just because the lock-in ended is rarely a good reason.
Because of the lock-in, every ELSS gain is long-term. Long-term gains on equity funds and listed shares together are tax-free up to ₹1.25 lakh in a financial year. Above that, they are taxed at 12.5% for sales from 23 July 2024.
If you pick the IDCW (dividend) option, payouts are added to your income and taxed at your slab rate. Most people investing for the long term choose the growth option.
Employers usually ask for investment proofs between January and March. For ELSS, the account statement or transaction confirmation from the fund house shows the amount and date. You can download it from the fund house or registrar website, or ask us. If you miss the employer's cut-off, you can still claim the deduction when you file your return under the old regime.
When the first units become free, review them instead of redeeming by reflex. If the fund has done reasonably against its category and you still need equity for a long goal, holding on is often sensible. If you do redeem, spreading redemptions across financial years can keep more of the gain within the yearly ₹1.25 lakh exemption.
ELSS still makes sense if you file under the old regime, have room left in the ₹1.5 lakh limit, and want equity exposure for five years or more. For you, it combines a tax deduction with long-term investing.
If you are in the new regime, ELSS is a diversified equity fund with a lock-in you don't need. An open-ended equity fund without the lock-in may suit you better. Either way, choose it for the investment first and the tax second.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
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Nick Investment is an AMFI-registered Mutual Fund Distributor (ARN-112296). We are not a SEBI Registered Investment Adviser. We distribute regular plans and receive trail commission from the asset management companies, which is included in the scheme's expense ratio.