Is LTCG applicable on ELSS?

Short Answer

ELSS funds invest a majority of your money into equity and have a 3-year lock-in period. LTCG (Long Term Capital Gains) is applicable on ELSS (Equity Linked Savings Scheme) funds after 1st April 2018. You will have to pay a 10% LTCG tax on your gains above Rs 1 lakh at the time of redemption without any indexation benefit.

Detailed Answer

What is ELSS?

ELSS or ‘Equity Linked Savings Scheme’ is a type of mutual fund where you get the benefit of tax deductions as well as higher returns. An ELSS fund is an excellent option for individuals who want to invest in equity and save taxes. ELSS allows you to claim up to Rs 1.5 lakh per year under Section 80C.

Moreover, you get better returns than any other debt securities like PPF (Public Provident Fund), NPS (National Pension Scheme), FDs, etc. ELSS funds allocate more than 65% of your funds into equity (listed shares) which in return provide better returns. There is a lock-in period of 3 years which is also low when compared to PPF and NPS. Here you also get to swap your fund if you are unhappy with its performance.

Is LTCG applicable on ELSS?

Now that you know the benefits of investing in an ELSS, the next question that enters your mind must be, are the gains taxable?

The answer is Yes. From 1st April 2018, LTCG (Long Term Capital Gains) on any ELSS funds would be taxable to the tune of 10% above Rs 1 lakh, without any indexation benefit. This means you will now have to pay a 10% LTCG tax on your gains over Rs 1 lakh at the time of redemption.

This might upset investors as other sovereign investment avenues such as the PPF and NPS fall under ‘EEE’ (Exempt-Exempt-Exempt) category. There are no taxes on the interest as well as the principal at the time of redemption.

On the other hand ELSS funds provide better returns than the fixed interest instruments which return 7-8% on average. As ELSS is linked with direct equity the returns are not fixed but the historic returns have invariably been of double digits. Therefore, the 10% tax could be compensated with a higher return on an ELSS. With this, you can achieve two objectives including saving taxes as well as generating wealth.

To get the best out of both worlds, you can split your tax savings investments into both PPF as well as ELSS to get better returns and to save more capital gains taxes.

Tagged With: long term capital gainsequity linked savings schemeequity investingstock marketmutual fundsdebt securities
Categories: Mutual Funds
Ask your query and our expert community would be happy to help
Discussion (0)
Related FAQs

Are market highs good to invest in Equity mutual funds?

Understanding the relative position of the market, the absolute values do not matter much. What matters is what is the earnings multiple, currently the market is trading at, popularly captured by a metric called P/E ( Price to earnings).

For long-term investments, which channels are viable for significant returns given the current market scenario?

For significant returns, one can look forward towards stock funds, real estate investments, dividend stocks, target-date funds and so on. Each one of these investments does offer something better to investors based on their capital of investments made.

How to choose stocks for long term investment in India?

There are various terms that play a huge role in determining how to choose stocks for long term investment such as P/E ratio, dividend consistency, etc. For a more elaborative information head below and read the explanation given for better understanding.

Which is better investing in equity, mutual funds, or keeping money in banks?

Equity and mutual funds are perfect if you want to invest in companies while seeing your money grow in a short period. Moreover, the chances of compounding your investments are higher. But the risk associated is equally greater considering the growth of companies and their performance in offering returns. But then keeping money in the bank is the safest way to keep your earnings. But then, due to inflation and low returns on interest, that value of the money kept might be cut down drastically.

How can NRIs from the United States invest in Mutual Funds in India?

NRIs living in the United States can invest in Indian Mutual Funds, but there are some hassles that have to be overcome. You will require an NRE, NRO, or FCRN account in order to convert the foreign currency into Indian rupees, post which you can complete the KYC and begin investing in Indian Mutual Funds.

Is Groww App Safe for Mutual fund and Stock Investing?

Yes, Groww app is completely safe for mutual fund, stock investing and trading. As a popular mutual fund investment plaftorm, Groww established itself quite well in the past few years. Now, it has also enetered the stock broking space so it's really good to see new entrants amid existing top discount brokers in India.

What are Short term Debt funds in India? Meaning & Features

Short Term Debt Mutual Funds provide a good alternative to traditional investment and income generating schemes. Often termed as highly liquid assets, short term funds are a common choice when it comes to planning your short-term investments.

What are the best mutual funds to generate income?

Mutual funds are professionally managed investment vehicles that offer numerous categories of funds to investors. To generate regular cash flows or income, investors can use the Systematic Withdrawal Plan or invest in Dividend Payout and Debt funds to receive regular income. Debt funds provide regular interest payouts, whereas dividend payout funds give regular dividends which act as regular income.

How does 3 year lock-in period work in ELSS while investing via SIP?

ELSS or Equity Linked Savings Scheme is a type of tax-saving investment instrument. It provides returns, similar to equity funds and offers a tax reduction under Section 80C. If you invest in a SIP method, every contribution towards the scheme will be considered as a separate investment and will incur a 3 year lock-in period.

What is the best way to hedge your investment portfolio?

Hedging your portfolio is important if you want to generate consistent long-term returns on your capital. Some of the classic methods to hedge your capital are to diversify, modify your asset allocation according to market cycles, and use derivative instruments like futures and options to hedge your portfolio.