Tax Savings

How to Get Tax Benefits Using ELSS?


Investors look for ways to put their money to work that will help them make money, get regular returns, or save money on taxes. There are many ways to invest money on the market, but most of them give yields that are levied in accordance with the Income Tax rules. ELSS funds come into play here. 

Equity-Linked Savings Scheme Funds, or ELSS Funds, are equity mutual funds that help you pay less tax. Investing in ELSS funds is a good way to save on taxes when compared to the other investment options available. ELSS has a relatively short lock-in period and skilled fund management, both of which can help you build up your wealth. 

Here, you will find everything you need to know about ELSS Tax Saving investment.

What Is an ELSS Fund? 

ELSS funds are known as equity funds that put most of their money into stocks or instruments that are similar to stocks. Tax saving mutual funds is another name for ELSS funds because Section 80C of the Income Tax Act lets you keep up to Rs. 150,000 of your annual taxable income tax-free if you invest in this scheme. 

As the names indicate, an ELSS fund is a plan that invests in equity and has to be held for a minimum of three years. In the past few years, many people who pay taxes have started to invest in ELSS plans to get tax breaks. If you put money in ELSS plans, you can have a tax rebate on the amount you put in for Rs 150,000. Also, the money you make from this ELSS investment at the end of the three-year period will be considered a long-term capital gain (LTCG) and taxed at 10% (if your income is above Rs. 1 lakh).

How Are ELSS Funds Operated? 

Diverse equity funds include ELSS Funds. These funds invest the majority of their capital in publicly traded company stocks, in a ratio that varies depending on the investment objective of the fund. The stocks are spread across a wide range of industries and market capitalization sizes. The greatest amount of capital growth is these funds’ long-term objective. After extensive market research, the fund manager selects stocks to maximise the portfolio’s risk-adjusted returns.

Features of ELSS Mutual Funds

Some of the most important features of ELSS funds are: 

  • At least 80% of the total amount that can be invested in ELSS is put into stock and stock-related instruments. 
  • The fund invests in stocks in a variety of ways, including across various market valuations, themes, and sectors. 
  • There is no limit on how long an ELSS investment can last. But there is a three-year lock-in period. 
  • Section 80C of the Tax Act gives tax relief on the amount invested in ELSS
  • The income is taken as long-term capital gains and taxed as per the current tax rules.

What Kinds of Tax Benefits Do ELSS Funds Offer? 

ELSS mutual funds offer the following tax benefits: 

  • ELSS mutual funds have a three-year lock-in period and can get a tax break of up to 1.5 lakhs. 
  • This plan could save you up to 46,800 per year in taxes. 
  • Since ELSS funds mostly put money in equity schemes, long-term capital gains (LTCG) taxes are only 10% on gains over 1 lakh. 
  • Long-term returns on investments in ELSS mutual funds that are less than 1 lakh are not taxed.

How Can You Profit by Investing in ELSS? 

  • Maximum returns in the shortest amount of time 

The redemption of ELSS fund units is only permitted after a three-year lock-in period. You can, however, hold the investment for longer than three years. To maximise returns, you can keep your funds invested for as long as possible. 

  • Better after-tax returns 

You can benefit from tax breaks, which increase fund returns. ELSS fund returns are classified as Long Term Capital Gains. Such gains from ELSS are not taxable up to Rs. 1 lakh. If increased, you must pay a 10% tax on the excess.

  • Returns from the stock market that beat inflation 

ELSS, which is an indirect investment in the stock market, has the potential to earn higher returns than other 80C investments like PPF, FDs, and other fixed-income investments. Long-term investors can get the most out of ELSS funds because they may be able to climb out of the market’s short-term volatility.

Things to Consider Before Putting Your Money into ELSS Funds 

  • Fund returns: Before you buy a fund, compare its performance to that of its competitors and a benchmark to see if it has been consistent in the past. If a fund does better than its benchmark or other funds, it can offer high returns. 
  • History of the fund house: It is best to pick fund houses which have done well for a long time, like five to ten years. 
  • Expense ratio: The expense ratio shows how much of your money goes toward managing the fund. If finance has a lower expected cost, you can get higher returns, so it’s always best to choose those. 
  • Financial parameters: When analysing the performance of a fund, you can also look at things like Standard Deviation, Alpha, and Beta. A fund with a larger standard deviation and a higher beta is riskier than one with a smaller standard deviation and a lower beta. Choose funds that have a higher Sharpe ratio. 
  • Fund manager: Another thing to think about is the fund manager since he or she is one of the most important people in managing your funds. The person in charge of the fund must be smart and have a lot of experience selecting the best stocks and putting together a strong portfolio.


Investing in ELSS mutual funds is like “killing two things with one stone.” It’s a great way to save money on taxes, and it’s also a great way to invest and build wealth over time. It’s different from other ways to save on taxes because you have to keep it for at least three years. 

ELSS also lets you choose from different types of investments, such as large-cap, mid-cap, and small-cap, as well as others. So, it is currently one of the greatest ways to invest in India.

For more information, you can visit the Piramal Finance website and explore their products and services.