What is ELSS?
ELSS (Equity Linked Savings Scheme) is a special category of mutual funds that offers dual benefits: tax saving under Section 80C and wealth creation through equity exposure. It's the only mutual fund type eligible for tax deduction.
Real Example: Rahul invests ₹12,500/month (₹1.5 Lakh/year) in an ELSS fund for 5 years at 12% expected return:
- Total Invested: ₹7,50,000
- Maturity Value: ~₹10,78,000
- Gains: ₹3,28,000 (LTCG tax: ₹25,375 on gains above ₹1.25L)
- Tax Saved (80C): ₹46,800/year × 5 = ₹2,34,000 total
Rahul's effective gain = Investment returns + Tax saved = ₹3,28,000 + ₹2,34,000 = ₹5,62,000!
Why Choose ELSS Over Other 80C Options?
| Feature | ELSS | PPF | Tax-Saver FD | NSC |
|---|---|---|---|---|
| Lock-in | 3 years | 15 years | 5 years | 5 years |
| Returns | 12-15% (market) | 7.1% (fixed) | 6-7% (fixed) | 7.7% (fixed) |
| Risk | Moderate-High | Zero | Zero | Zero |
| Maturity Tax | 12.5% LTCG | Tax-Free | Taxable | Taxable |
How Does the Calculator Work?
The ELSS Calculator computes your returns in three steps:
- Growth Calculation: Uses SIP or lumpsum formula to project maturity value at expected return rate
- LTCG Tax: Calculates 12.5% tax on gains exceeding ₹1.25 Lakh
- 80C Savings: Computes annual tax saved based on your tax bracket
ELSS Formulas Used
SIP Future Value
FV = P × ({[1 + r]^n – 1} / r) × (1 + r)
- P: Monthly investment
- r: Monthly return rate (Annual Rate / 12 / 100)
- n: Number of months
Lumpsum Future Value
FV = P × (1 + r)^n
LTCG Tax Calculation (FY 2025-26)
LTCG Tax = (Total Gains – ₹1,25,000) × 12.5%
Note: Only gains above ₹1.25 Lakh are taxed. Gains up to ₹1.25L are tax-free.
Section 80C Tax Savings
Annual Tax Saved = Investment (max ₹1.5L) × Tax Bracket × 1.04
The 1.04 accounts for 4% health and education cess.
Benefits of ELSS Investment
- Shortest Lock-in: Only 3 years vs 15 years for PPF or 5 years for Tax-Saver FD
- Highest Return Potential: 12-15% historical returns, significantly higher than other 80C options
- Dual Benefit: Tax saving now + wealth creation for future
- SIP Flexibility: Start with as low as ₹500/month, increase anytime
- Professional Management: Fund managers handle stock selection and market timing
- Dividend Option: Can choose dividend payout (taxable) or growth option
Important Points to Remember
- Old Regime Only: 80C deduction is NOT available under new tax regime
- Each SIP Unit: Has its own 3-year lock-in from date of investment
- No Partial Withdrawal: Cannot withdraw partially before 3 years
- 80C Limit: ₹1.5 Lakh is the combined limit for all 80C investments
💡 Pro Tip: If you're in the 30% tax bracket, investing ₹1.5L in ELSS saves ₹46,800 in taxes every year. Over 10 years, that's ₹4.68 Lakhs in tax savings alone - essentially free money while your investment grows!
Frequently Asked Questions (FAQs)
What is ELSS mutual fund?
ELSS (Equity Linked Savings Scheme) is a tax-saving mutual fund that invests at least 65% in equities. It's the only mutual fund eligible for tax deduction under Section 80C (up to ₹1.5 Lakh). The lock-in is just 3 years - shortest among all 80C options like PPF (15 years) or Tax-Saver FD (5 years).
What is the lock-in period for ELSS?
ELSS has a 3-year lock-in period, the shortest among all Section 80C investment options. Important: Each SIP installment has its own 3-year lock-in from its purchase date. After 3 years, you can hold, redeem, or switch to another fund as per your goals.
How is ELSS taxed in 2025-26?
ELSS gains are taxed as Long-Term Capital Gains (LTCG). Gains up to ₹1.25 Lakh per financial year are completely tax-free. Gains above ₹1.25 Lakh are taxed at 12.5% (increased from 10% in Budget 2024). There's no indexation benefit for equity funds.
Is ELSS available under new tax regime?
No, Section 80C deduction is not available under the new tax regime. If you opt for new regime, you cannot claim ₹1.5L deduction for ELSS investment. However, ELSS as an investment can still grow, and LTCG taxation applies regardless of your tax regime choice.
How much tax can I save with ELSS?
By investing the maximum ₹1.5 Lakh in ELSS under 80C: 30% bracket: Save ₹46,800/year | 20% bracket: Save ₹31,200/year | 10% bracket: Save ₹15,600/year. These savings are under the old tax regime only. Over 10 years, 30% bracket saves ₹4.68 Lakhs!