Who doesn’t want to save taxes? In fact, every year young professionals hope that the union budget raises the income slab for tax payment. Let us clear the air fellow readers, no one is listening! Well, the truth hurts but what shouldn’t hurt you is a smart investment. Over the years, individuals have been investing in various investment schemes that come under Indian Income Tax’s Section 80C which help them claim tax benefits. But one scheme that is a favorite among newbies, as well as seasoned investors, is the Equity Linked Saving Scheme or ELSS. Like all mutual fund schemes, ELSS invests in equity funds, thus exposing your money to higher risk. But by doing so, it also increases your chances of churning far better incentives as compared to other tax exempting investment schemes and at the same time, continues to restrict your tax payments.
Though ELSS is a tax saving investment scheme, will your gains still be taxed? But before finding out whether gains derived from ELSS are taxed, let us understand how ELSS helps investors save from tax deductions.
Equity Linked Saving Scheme or ELSS is an open-ended equity linked tax saving scheme with a predetermined lock-in period of 3 years. It allows investors to claim maximum tax benefits worth Rs. 46,800 with an investment of Rs. 1.5 lakh annually. Because ELSS invests in equity markets, it increases your chances of gaining higher returns in the longer run. Hence, ELSS should always be considered for reinvestment after the completion of its three year lock-in period. That’s because historically equity-related schemes have proven to perform way better as compared to their shorter run in the market. It also helps the fund beat market volatility. Plus, when you are reinvesting in an ELSS, you are gaining wealth and saving taxes simultaneously.
Now let us come to the taxation on ELSS gains.
Gains are generally classified into two categories – short term capital gains (STGC) and long term capital gains (LTCG). Short term capital gains are profits derived from the sale of capital assets or shares or investment scheme before one year. On the other hand, any investment sold after more than one year is considered as long term capital gain.
Since ELSS has a statutory lock-in period of three years, gains derived from ELSS investment are subject to long term capital gain tax. The Union Budget 2018-19 released by then finance minister of India, late politician Shri Arun Jaitley re-introduced the Long-Term Capital Gains (LTCG) tax on equity funds, which makes ELSS gains taxable too. Long term capital gains of over Rs. 1 lakh derived from ELSS investments are subject to 10% tax deductions.
Now that you are aware of what ELSS is and how gains from ELSS are taxed, planning on some investment? If so, one of the best ELSS scheme currently available in the market is Axis Long Term Equity Growth. So if you want to increase your chances of fetching a decent amount of returns from an ELSS investment and save tax at the same time, you should consider investing in suitable Long Term Equity Growth fund scheme.
