In 2008, Senior Citizens Saving Scheme 2004 and the Post Office Five Year Term Deposit Account have also been brought under the purview of this Section an additional deduction of Rs 15,000 allowed under Section 80 D to individuals paying medical insurance premium for his/her parent(s).

What are Equity Linked Saving Schemes?

Equity linked savings schemes (ELSS) are mutual funds that help you gain the twin advantage of earning equity-linked returns with the additional benefit of saving tax. ELSS have a lock-in period of 3 years, which encourages long term investing among investors and gives ample time for the fund manager to manage a portfolio of stocks that can outperform over a period of time.

Why is the Equity Linked Savings Scheme a winner ?

Over a longer horizon, it has been witnessed that equities tend to outperform most other asset classes in terms of returns.

Advantages of ELSS

• Investments in equity deliver returns over a longer period.
• A lock-in of 3 years ensures you stay invested for a longer period, thus allowing your money to grow over a period of time.
• ELSS will endeavour to provide higher returns with tax-efficiency
• One has the option of investing small amounts of Rs 500 each month in ELSS through Systematic Investment Plans (SIPs)

The above is provided only for general information purpose. In view of the different nature of tax benefits, each investor is advised to consult with his or her own tax consultant with respect to the specific tax implications arising out of their participation in the any of the schemes

• How is the dividend taxed in the hands of the individual?
  
  The amount of dividend received by the individual is taxfree in their hands.
  
  Thus, any amount of dividend that you get from the mutual fund will not form a part of the taxable income. This is the direct impact of dividends.
  
  On the other side, when mutual funds pay dividends they have to pay a dividend distribution tax if the scheme is a debt scheme and hence, in such schemes, there is also an indirect impact for the investor.


• What is the position in case of capital gains in equity oriented schemes?
  
  Equity-oriented schemes are defined as those schemes where the equity holding of the fund in domestic companies is more than 50%. Here, the tax aspect is very favourable for the investors.
  
  If the holding is for a period of more than 12 months, then there is no long capital gains tax to be paid by the investor. However, there will be a securities transaction tax that will have to be paid. On the other hand, for a holding period of less than 12 months will result in a short-term capital gains and consequently, a tax of 15% for the individual.


• How can I avoid payment of capital gains on mutual fund investments?
  
  The short term capital gain, which is not exempt from tax, can be invested in the specified asset, mentioned below within 6 months of the sale
  
  Specified asset means any bond redeemable after 3 years:
  
  Issued on or after April 1, 2000 by NABARD (National Bank for Agriculture and Rural Development or NHA (National Highways Authority of India
  
  Issued on or after April 1, 2001 by the Rural Electrification Corporation Ltd
  
  Issued on or after April 1, 2002 by the National Housing Bank or by the Small Industries Development Bank
  
  Such capital gains can also be invested in any residential house property in accordance with Section 54F of the Act and one can claim exemption from capital gains.


• What is the tax aspect on debt mutual fund schemes?
  
  There is no tax on dividends received from debt mutual fund schemes. However, the capital gains aspect is different. Here, a short-term capital gain will result in an addition to the total income of the individual by the amount of the gain.
  
  This will mean taxation at the applicable rate of tax for the individual. In case there is long term capital gains tax, then the investor has a choice of selecting the rate of 10% without using the benefit of indexation or 20% after the using the benefits of indexation.