How to Claim Tax Benefits on Mutual Funds (ELSS)

ELSS funds qualify for tax exemptions under Section 80C of the Income Tax Act. Deductions of up to Rs.1.5 lakh can be availed on the amount invested on ELSS funds. Supporting documents have to be provided by the policyholder to claim deductions.

What are ELSS Funds?

ELSS or Equity Linked Savings Scheme is a type of diversified equity mutual fund that is qualified for tax exemption under Section 80C of the Income Tax Act. Most investors prefer to invest in this mutual fund instrument as it offers capital appreciation and tax benefits as well. This instrument come with a 3 year lock-in period. With the financial year 2014-2015 coming to a close, investment in ELSS are on the rise.

What are the Tax Benefits under Section 80C of the IT Act?

Under Section 80C of the Income Tax Act, the taxpayer can avail tax deductions from their gross total income. Individuals who have ELSS funds can avail deductions up to Rs1.5 lakh on the amount invested by them in the ELSS fund. Taxpayer can make various other investments to avail deductions in the Section 80C of the IT Act. But, the taxpayer can also invest just in the ELSS fund and avail the benefits. Maximum amount that is allowed for deduction in the Section 80C of the IT Act is Rs.1.5 lakh in a year.

Why should a Taxpayer choose ELSS?

The following are the reasons why you must consider investing in ELSS fund:

  • The lock-in period is much lower when compared to PPF, NSC and bank fixed deposits.
  • ELSS invests in equity markets and investing in equity markets for a long term can give you better returns when compared to the returns offered from other assets.
  • You can choose the SIP investment and enhance your regular investing habit.
  • If you opt for a dividend scheme, then you can get income from your investment amount in the lock-in period.
  • The dividend earned from ELSS is tax-free.
  • TDS is not applicable on the dividend received or on the amount paid at the time of redemption.
  • There is also no tax on capital gains made from ELSS funds at the time of redemption. But Securities Transaction Tax will be charged at 0.001% on the total redemption value.
  • You get three options to choose from with ELSS funds. They are Growth option ELSS, Dividend option ELSS, Dividend reinvestment option.

When can Tax Benefits on ELSS Fund be claimed?

Tax deductions under Section 80C can be only claimed during a financial year, i.e. if an individual invests in an ELSS Fund in July 2015, deductions can be claimed for the financial year 2015-16. You can declare the investment at the beginning of a financial year itself or you can declare it at the end of the financial year.

How to claim Tax Benefits?

Taxpayers can claim the deductions under Section 80C of the IT Act when they file their income tax returns for a particular year. All supporting documents and relevant forms must be filled out and all information provided should be accurate and up-to-date.

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