Equity-linked Saving Schemes are mutual funds that have a majority of the financial corpus invested in equity. Under Section 80C of the Income Tax Act, 1961 these investments have various tax advantages which have been listed below.
1. Lock-in Period:
The lock-in period for ELSS is relatively shorter when compared to other tax-saving schemes. ELSS come with a lock-in period of 3 years, while other schemes like PPF (Public Provident Fund) and NSC (National Security Certificates) come with a lock-in period of 15 years and 6 years respectively.
2. High Returns:
ELSS provide some of the highest returns among any of the tax-saving schemes as they are equity-based investments. But as they are based on a volatile asset the risk they carry is significantly higher than other investments.
3. Long-Term Capital Gains
As ELSS come with a minimum of a 3-year lock-in period. Any returns on it are considered Long-Term Capital Gains which are taxable at a rate of 10% for any returns over Rs. 1 lakh rather than 15% for Short-Term Capital Gains.
4. Compounding Income
The minimum 3-year lock-in period allows the investor to see the benefits of compounding returns on investments.
5. SIP (Systematic Investment Plan)
An ELSS which is under a SIP can provide a level of financial security, as it is a periodic investment of portions of the total investment, thereby, not requiring the individual to make a lump sum investment in a volatile asset.