ELSS Significance and its Tax Implicability

Equity Linked Savings Schemes(ELSS) allows tax exemption up to 1.5 Lakh per financial year. They are becoming more popular due to its lowest lock-in of 3 years. That Means, the investor can’t redeem the corpus in the interim, he can only redeem after completion of 3 years,

The same applies to SIP too! As every sip installment is considered to be fresh investment, the tax payer(investor)can redeem his 1st installment corpus at the end of 37th month and the next installment at the end of 38th month and so on—–

As said before, Of all the tax saving instruments, Equity Linked Saving Schemes comes with lowest lock-in. Though there is a risk involved(as it is an equity product)it outperforms all other asset classes with large margin.

ELSS Tax Applicability- As it is an equity product, the same taxation of equity applies to ELSS too! Earlier equity schemes are tax exempted if hold for more than 1 year(3 Years in case of ELSS), But our former Finance Minister introduced “Tax on equity products if LTCG (Long Term Capital Gains)profits are more than 1 lakh” with effect from 2018 April 1st.

Arun Jaitely introduces “GrandFather Clause”(Capital gains upto February 1st,2018 are totally exempted). So if you are holding your ELSS investments from 2018 or before and haven’t redeemed till now, calculate your capital gains from 2018 February 1st to till date and if you still have profits above 1 lakh, then you have to pay 10% on the capital gain above 1 lakh as LTCG(Long Term Capital Gain Tax)

If you have expertise to apply grandfathering clause and derive capital gain tax to be paid, DIY(Do-it-yourself)otherwise consult your tax advisor and calculate exact capital gain tax to be paid

Do remember, the above task applies if you are holding your ELSS investments from 2018 and haven’t redeemed so far!

If you are holding your ELSS investments from recently and you have completed your lock-in of 3 years and derived capital gain of more than 1 lakh, the profit you have gained over 1 lakh will be taxable at 10% plus Surchage(1 Lakh is tax exempt, the profit above 1 lakh would be taxable)

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