Note4Students
From UPSC perspective, the following things are important :
Prelims level: Equity Linked Savings Schemes (ELSS); Section 80C of the Income Tax Act.
Why in the News?
- Equity Linked Savings Schemes (ELSS) are mutual fund schemes that offer tax benefits under Section 80C of the Income Tax Act.
- Recently, ELSS has seen a decline in popularity, with more money being withdrawn from these schemes than invested.
What is Section 80C of the Income Tax Act?
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About Equity Linked Savings Schemes (ELSS)
- An ELSS fund or an equity-linked savings scheme is the only kind of mutual funds eligible for tax deductions under the provisions of Section 80C of the Income Tax Act, 1961.
- Investors can claim a tax rebate of up to Rs 1,50,000 and save up to Rs 46,800 a year in taxes by investing in ELSS mutual funds.
- ELSS mutual funds’ asset allocation is mostly (65% of the portfolio) made towards equity and equity-linked securities such as listed shares.
- They may have some exposure to fixed-income securities as well.
- These funds come with a lock-in period of 3 years only, the shortest among all Section 80C investments.
- Being market-linked, they are subject to market risk, but may offer potentially higher returns compared to traditional tax-saving instruments like National Savings Certificate (NSC) or Public Provident Fund (PPF).
Recent Trends in ELSS
- In the past few months, more money has been taken out of ELSS than put in.
- For example, last month ₹445 crore was withdrawn, while in April it was ₹144 crore.
- In the last fiscal year, only ₹1,041 crore was invested in ELSS, compared to ₹7,744 crore the previous year.
Impact of the New Tax Regime
- A new tax regime was introduced in 2020-21, which is now the default option.
- The old tax regime offered various tax exemptions and deductions, helping to reduce income tax.
- These benefits are not available under the new tax regime, making ELSS less attractive to investors.
PYQ:[2021] Indian Government Bond Yields are influenced by which of the following?
Select the correct answer using the code given below. (a) 1 and 2 only |
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