Equity Linked Savings Scheme (ELSS) is an equity-oriented mutual fund scheme that invests upto 80% of its assets in Equities, Cumulative Convertible Preference Shares and Fully Convertible Debentures (FCDs) & Bonds etc. and remaining 20% of its assets in money market instruments. It offers the benefit of potential wealth creation while offering deduction# up to Rs.1.5 lakh under section 80C of Income Tax Act, 1961.
Additionally, as ELSS has a three-year lock-in period, the potential gains qualify as long-term capital gains at the time of redemption. As per the current income tax laws, long-term capital gains on equity-oriented mutual fund schemes are taxed at 10% plus applicable taxes, on gains in excess of Rs. 1 lakh per financial year*
* The effective tax rate is applicable from 1st April 2018. For units acquired before January 31, 2018 and redeemed on or after April 1, 2018, LTCG is not applicable for capital gains accrued up to January 31, 2018.).
# as per current applicable tax laws.