Can I Invest ELSS Beyond the Section 80C Limit?

Tax season is around the corner and if you are still pondering over where to invest your hard earned money, you can consider investing in ELSS. Not only will you save tax, your invested money can even multiply over the course of its lock-in period and help you build a decent corpus.

Equity Linked Savings Scheme or ELSS is an open ended tax saving mutual fund scheme that comes with a three year lock in and tax benefit. If you haven’t yet decided where to invest in order to save yourself from tax deductions, then you can consider investing in ELSS. ELSS is the only mutual fund scheme that comes with a tax benefit.

Here’s an example to help you understand how ELSS works –

RanjitDevkar, a senior instructionaldesigner earns Rs. 20 lakhs per annum. This makes him fall under the 30 per cent tax slab. Ranjit learns about ELSS and decides to invest in this tax saving scheme. According to Section 80C of the Indian Income Tax Act, 1961 you can invest Rs. 1.5 lakhs per fiscal in an ELSS scheme and claim tax deductions for the same. By investing in ELSS Ranjit has brought down his tax liability and he will now be taxed for Rs. 18.5(20-1.5) lakhsonly.

Can you invest more than Rs. 1.5 lakhs in ELSS?

ELSS is an open ended mutual fund scheme. There is no upper limit for investing in ELSS. Hence, depending on your risk appetite and investment objective, you are free to invest as much as you want in an ELSS fund. However, you cannot claim for tax deductions for investments more than Rs. 1.5 lakhs. That’s because according to the Section 80C of the Indian Income Tax Act, 1961 one cannot claim for tax deductions exceeding Rs. 1.5 lakhs towards their ELSS scheme. However, if you wish to earn better capital appreciation you can increase your investments in ELSS fund.

ELSS is an equity oriented scheme. This means that investors should keep a long term investment horizon if they want to make the most out of their investments and earn higher returns. We all know that equity oriented schemes are prone to market volatility. Over, the short term you equity portfolio might face losses. Hence, if you really want to make the most out of your ELSS investments then you need to have a long term investment horizon. You do not have to redeem the invested amount once the lock-in period is over. If the tax saver fund you invested in performing exceptionally, might as well remain invested or continue investing till it continues to churn decent returns.

Consider starting a SIP in ELSS fund

If you want to give your ELSS investments a systematic and disciplinary approach, then you can consider starting a SIP in ELSS fund. Systematic Investment Plan or SIP is an easy and hassle free approach for investing small fixed amounts at regular intervals in ELSS fund. Once you decide how much you want to invest every month and complete all the pre-investment formalities with your bank and the fund house, every month on a fixed date a predetermined amount will be debited from your savings account and electronically transferred to the fund.

SIP is an ideal choice of investing for anyone who wants to gradually grow their wealth. ELSS needs investors to continue investing for a minimum period of 36 months. SIP might be an ideal approach for systematic and regular investing. One can even stop their SIP investments and switch to another ELSS fund if their current portfolio isn’t performing as per their expectations.

Save tax this fiscal year by investing in ELSS fund.