ELSS (equity linked savings scheme) is an equity mutual fund that qualifies for an income-tax deduction, but only under the old tax regime.
The new regime is now the default. Many people who still invest in ELSS for the deduction no longer get it. This page explains the rules and who ELSS still makes sense for.
Under the old tax regime, money put into ELSS counts towards the ₹1.5 lakh yearly deduction long known as Section 80C. That limit is shared with EPF, PPF, life insurance premiums, home-loan principal, children's tuition fees and several others. If those already fill the ₹1.5 lakh, more ELSS gives you no extra deduction.
Under the new tax regime, this deduction is not available at all. The new regime applies unless you choose the old one. Salaried people tell their employer their choice at the start of the year. Others choose when they file the return.
The Income-tax Act, 2025 applies from 1 April 2026. It keeps this old-regime deduction under a new section number. Check the limit and the conditions on the Income Tax Department website each year, because they can change in a Budget.
ELSS units are locked in for three years from the date you buy them. With a SIP, each monthly instalment has its own lock-in. If you start a SIP in April 2026, the March 2027 instalment stays locked until March 2030.
Locked units cannot be redeemed or switched. Once the three years are over, you are free to keep them. Nothing says you must sell.
Three years is the shortest lock-in among the common tax-saving options. PPF runs for 15 years, and tax-saving bank FDs lock in for five.
ELSS funds must keep most of their money (at least 80%) in shares. Their value can fall sharply, and at the end of three years your units may be worth less than you paid.
Treat three years as the minimum, not the plan. If the money is meant for something specific in three years, an equity fund is a poor match even with the tax saving.
When you redeem, ELSS is taxed like any other equity fund. Because of the lock-in, every gain is long-term. Long-term gains on equity funds above ₹1.25 lakh in a financial year are taxed at 12.5% for sales from 23 July 2024. The ₹1.25 lakh is a combined figure for all your equity funds and listed shares, not per scheme.
If you choose the IDCW (dividend) option, each payout is added to your income and taxed at your slab rate. Most long-term investors choose the growth option.
If you are in the new regime, ELSS is simply a diversified equity fund with a lock-in. A flexi-cap or large-cap fund without the lock-in may suit you better, and we can show you both side by side.
Comparing the two regimes is a job for your CA or the Income Tax Department's tax calculator. Once you know which regime you are in, we help with the investment side.
The office is at Khatri House, Behind S.B.I. Bank, O/s Jalori Gate, Jodhpur. You can walk in Mon–Sat, 10 am – 7 pm, or call first so we can keep the forms ready.
No. The deduction is available only if you file under the old tax regime. Under the new regime, ELSS is an ordinary equity fund with a three-year lock-in.
Three years from the date each unit is bought. With a SIP, every monthly instalment has its own three-year lock-in.
Only the part of the ₹1.5 lakh limit that EPF, PPF, insurance premiums, tuition fees and home-loan principal have not already used. Anything above the limit gives no extra deduction.
No. Long-term gains on equity funds, including ELSS, are taxed at 12.5% on the amount above ₹1.25 lakh in a financial year.
They are different products. PPF and tax-saving FDs pay a set interest rate. ELSS is market-linked and can lose value, but has the shortest lock-in. The right mix depends on how much risk you can take.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
Nick Investment, Khatri House, Behind S.B.I. Bank, O/s Jalori Gate, Jodhpur, Rajasthan 342001. Mon–Sat, 10 am – 7 pm. Call +91 94141 28970 or WhatsApp. Call +91 94141 28970 · WhatsApp us
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.