Want Bigger Tax Savings? Invest in ELSS for High Returns and Dual Benefits

When it comes to saving taxes while building long-term wealth, Equity Linked Savings Scheme (ELSS) has emerged as one of the most attractive investment options for salaried individuals and new investors alike. Over the last year, several ELSS mutual funds have delivered impressive returns of up to 59%, making them not only a tax-saving tool but also a powerful wealth creation strategy.

What is ELSS?

ELSS is a category of mutual funds regulated by SEBI (Securities and Exchange Board of India). According to the rules, at least 80% of the fund’s portfolio must be invested in equities (stocks), while the remaining portion can be allocated to debt instruments and other assets. This mix ensures a balance of growth potential and portfolio stability.

Unlike traditional investment options such as Fixed Deposits (FDs) or Public Provident Fund (PPF), ELSS offers a shorter lock-in period of just 3 years. In comparison, FDs come with a 5-year lock-in and PPF requires a minimum of 15 years. After the 3-year lock-in, investors are free to make partial withdrawals or continue their investment for higher growth.

Tax Benefits Under Section 80C

One of the key attractions of ELSS is its eligibility for tax deductions under Section 80C of the Income Tax Act. Investors can claim up to ₹1.5 lakh as a deduction from taxable income every financial year by investing in ELSS. This helps reduce overall tax liability while simultaneously growing wealth.

Advantage of Lower Long-Term Capital Gains Tax

ELSS also offers favorable taxation on returns. Gains up to ₹1.25 lakh from ELSS investments in a financial year are completely tax-free. Any gains above this threshold attract only 12.5% Long-Term Capital Gains (LTCG) tax, which is significantly lower than most income tax slabs. This feature makes ELSS highly efficient for wealth creation compared to other instruments.

The EEE Advantage

ELSS falls under the EEE (Exempt-Exempt-Exempt) category. This means:

• The investment amount qualifies for tax exemption.

• The returns (capital appreciation) are tax-free up to the LTCG limit.

• The maturity amount is also exempt from tax.

This triple tax benefit is a major reason why ELSS is one of the most preferred investment choices for salaried taxpayers and professionals.

Easy to Start With Low Amounts

Another advantage of ELSS is that it allows you to start investing with just ₹500. This makes it accessible for beginners and young investors who want to build a habit of saving regularly. By opting for a Systematic Investment Plan (SIP), even small monthly contributions can accumulate into a large corpus over time.

For example, investing just ₹2,000 every month in ELSS can potentially create a significant fund over 10–15 years, thanks to the power of compounding and equity growth. This helps investors achieve long-term financial goals such as buying a house, funding children’s education, or securing retirement.

Why ELSS is Better Than Traditional Tax-Saving Options

• Short Lock-In: Only 3 years, compared to 5–15 years in FD and PPF.

• Higher Returns: Historically, ELSS has provided higher returns due to equity exposure.

• Flexibility: Investors can continue beyond 3 years for higher growth.

• Dual Benefit: Tax savings + wealth creation.

Final Thoughts

ELSS is not just a tax-saving option—it is a smart wealth-building tool. With its combination of short lock-in, equity exposure, tax deductions under Section 80C, and EEE benefits, it stands out among all other tax-saving investments.

If you are looking for greater tax benefits in FY 2024-25 while growing your wealth, ELSS is one of the best choices. However, as with all equity investments, it is advisable to stay invested for the long term and use a SIP approach to minimize risks and maximize returns.