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How to invest in ELSS to save tax

Posted by: Girija Gadre on Jul 30, 2018, 06.30 AM IST

Section 80C allows deduction of up to Rs 1.5 lakh from taxable income if an assessee invests in any of the instruments approved under this section. This results in reduction of tax payable by the assessee. Equity-linked savings scheme (ELSS) is one such investment avenue. ELSS funds have a lock-in period of three years. Here’s how one can invest. 

An essential requirement for investing in mutual funds is KYC compliance, and this is mandatory for ELSS too. Proof of address and identity, along with an in-person verification process, must be completed before investing. 

Investment can be made either directly or through a mutual fund distributor/adviser. The investor application form can be obtained from the AMC or distributor or downloaded from the mutual fund website 

The minimum amount that a person can invest in an ELSS, to start with, is Rs 500. There is no maximum limit. However, tax deduction will be available only up to Rs 1.5 lakh, or the amount invested in the financial year, whichever is lower. 

Modes of investing 
One can make a lumpsum investment in ELSS. Alternately, the investor can opt for a systematic investment plan (SIP). In the case of latter, every month a specifi ed amount is debited from the investor’s bank account and invested in the scheme. 

Account statement
Once the investment is completed, a statement of account is sent by the AMC, which can be kept as a record of investment made for tax purposes. 

Points to note
* ELSS invests in equity and equity-oriented securities that are prone to market ups and downs. 

* Redemption from ELSS (since it is compulsorily held for three years) is subject to long-term capital gains taxable at 10%. 

The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta