ELSS, a tax-saving mutual fund, is an open-ended equity-linked saving scheme with a statutory lock-in of three years.
Budget 2020 proposed new optional personal income tax slabs with lower rates. Under the proposed tax regime, the investors will have to forego all the deductions that were applicable in the existing one. In the current structure, investors can save tax by investing up to Rs 1.5 lakh in schemes such as Equity Linked Savings Scheme (ELSS) under Section 80C of the Income Tax Act. So, does this mean ELSS will lose significance now?
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ELSS, a tax-saving mutual fund, is an open-ended equity-linked saving scheme with a statutory lock-in of three years. ELSS schemes have witnessed a significant inflow of investors in recent years due to its tax-saving nature and capability to yield double digit growth.
However, with the new proposal, will the popularity of ELSS remain intact?
Here's what experts say:
While the government has provided an alternate tax structure for the people who do not wish to have exemptions, the old tax structure is generally more beneficial, according to experts.
"The existing tax regime helps in creating savings for the people. Generally, all well-earning individuals would continue to remain in the old regime. So, the ELSS and Insurance flows should not get affected significantly," said Raghvendra Nath, managing director, Ladderup Wealth Management.
According to Gautam Kalia, head – investment solutions, Sharekhan by BNP Paribas, ELSS scheme will remain attractive especially among the lower income group, as the taxable income reduces considerably after deduction of Rs 1.5 lakh.
"The comparison between the old and the new tax regime across income group shows that the investors will save more tax under the existing regime as compared to the new one because of the various deductions and exemptions applicable under the Income Tax Act," he said.
First Published: IST