The Equity Linked Savings Scheme (ELSS) has always remained as one of the most popular means of tax-saving due to its potential to create greater returns in the long term, aside from providing tax benefits on the investment amount and lower tax on the long-term capital gain (LTCG) on maturity.
The Equity Linked Savings Schemes have a lock-in period of about 3 years. The sum invested in ELSS is deemed fit for tax deduction up to Rs 1,50,000 in a financial year under section 80C of the Income Tax Act. The LTCG on withdrawal up to Rs 1 lakh in a financial year is tax exempted, while 10 percent of the capital gain tax is levied on redemption amount exceeding Rs 1 lakh in a financial year. The implementation of Stamp Duty from July 1, 2020, on financial securities transactions at the national level, 0.005 percent Duty will be imposed on amounts invested in MFs, including the investments in ELSS.
The Stamp Duty will be charged on both lump sum investments as well as investments through the Systematic Investment Plan (SIP).
Thus, if you invest Rs 1,50,000 in ELSS to save tax, Rs 7.50 will be deducted from the amount invested and the net investment amount will be Rs 1,49,992.50. Consequently, to avail for tax benefits on the whole eligible amount of Rs 1.5 lakh, one needs to pay Rs 1,50,007.50, that is the 0.005 percent tax on Rs 7.50 will be negligible.
Stamp Duty will be charged on both regular and direct schemes and will be applicable on buying through stock exchanges and also on purchases from the Asset Management Companies (AMCs). Although the quantum of Stamp Duty is negligible, particularly for long-term investors, it may bother those investors who make frequent investments and redemptions in short-term funds like liquid funds or overnight funds. The Stamp Duty is also applicable to shifts from one fund to another.