New Delhi: With the Indian government pushing more taxpayers towards the new tax regime, many investors are reassessing their financial strategies — especially when it comes to tax-saving investments like Equity Linked Savings Schemes (ELSS). Once a popular choice for locking in tax benefits under Section 80C, ELSS now faces questions about its relevance since the new regime does away with such deductions.
ELSS are equity-oriented mutual funds that invest at least 80 percent of their assets in stocks and equity-related instruments. Traditionally, they offered a key advantage: tax deductions of up to Rs 1.5 lakh per year under Section 80C of the Income Tax Act. This deduction reduced taxable income and made ELSS a cornerstone of tax planning for many investors.
However, under the new tax regime, deductions under Section 80C — including those for ELSS — are not available. This means investors who opt for the new regime cannot claim tax breaks for their ELSS contributions, stripping away one of the main incentives for investing in these schemes.
This change has prompted some taxpayers to halt fresh ELSS investments or reconsider their strategy altogether. After all, if the primary tax benefit is no longer applicable, what is the point of continuing to invest in ELSS? The answer, financial advisors say, lies in understanding both long-term wealth creation and the behavioural advantages ELSS funds bring to an investment portfolio.
Even without 80C deductions, ELSS may still be relevant for investors focused on long-term goals. The mandatory three-year lock-in period can help reduce emotional decision-making, preventing premature withdrawals during market volatility and encouraging disciplined investing. This structure makes ELSS a useful tool for building wealth over time, particularly for investors who struggle with timing the market.
From a performance perspective, ELSS funds have historically delivered competitive returns, often in line with or slightly outperforming other diversified equity categories. While past performance doesn’t guarantee future results, the potential for market-linked growth remains a compelling reason to hold or continue investing in ELSS even without tax breaks.
That said, investors should evaluate their personal goals, risk tolerance, and tax situation before deciding. Under the new regime, some may prefer other equity funds or investment options that better align with their financial objectives. Consulting a financial planner can help tailor an approach that balances tax efficiency and long-term wealth creation.
